KGV Blood Bank_Flexible Budget

Question The KGV Blood Bank a private charity partly supported by government grants is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence the blood bank collected and processed about 20% more blood than had been originally planned for the month. A report prepared by a government official comparing actual costs to budgeted costs for the blood bank appears below. (The currency on St. Lucia is the East Caribbean dollar.) Continued support from the government depends on the blood bank?s ability to demonstrate control over its costs. KGV Blood Bank Cost Control Report For the Month Ended September 30 Planning Budget Actual Results Variances Liters of blood collected . . 600 780 Medical supplies . . . . . . . . $7110 $9252 $2142 U Lab tests . . . . . . . . . . . . . . 8610 10782 2172 U Equipment depreciation. . 1900 2100 200 U Rent . . . . . . . . . . . . . . . . . 1500 1500 0 Utilities . . . . . . . . . . . . . . . 300 324 24 U Administration . . . . . . . . . 14310 14575 265 U Total expense . . . . . . . . . . $33730 $38533 $4803 U The managing director of the blood bank was very unhappy with this report claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget. The following cost formulas were used to construct the planning budget: Cost Formulas Medical supplies . . . . . . . . . . . . $11.85q Lab tests . . . . . . . . . . . . . . . . . . . $14.35q Equipment depreciation . . . . . . . $1900 Rent . . . . . . . . . . . . . . . . . . . . . . $1500 Utilities . . . . . . . . . . . . . . . . . . . . $300 Administration . . . . . . . . . . . . . . $13200 + $1.85q Required: 1. Prepare a new performance report for September using the flexible budget approach. 2. Do you think any of the variances in the report you prepared should be investigated? Why?

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