P10-22 KGV Blood Bank
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 over 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 on the following page. (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
Actual
Budget Results Variances
Liters of blood collected . . . .
. . . . . 600 780
Medical supplies. . . . . . . . .
. . . . . . $ 7,110 $ 9,252 $2,142 U
Lab tests . . . . . . . . . . . .
. . . . . . . . . 8,610 10,782 2,172 U
Equipment depreciation . . . . .
. . . . 1,900 2,100 200
U
Rent . . . . . . . . . . . . . .
. . . . . . . . . . 1,500 1,500 0
Utilities . . . . . . . . . . . .
. . . . . . . . . . 300 324 24 U
Administration. . . . . . . . . .
. . . . . . . 14,310 14,575 265 U
Total expense . . . . . . . . . .
. . . . . . . $33,730 $38,533 $4,803 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:
KGV Blood Bank
Cost Control Report
For the Month Ended September 30
Planning
Actual
Budget Results Variances
Liters of blood collected . . . .
. . . . . 600 780
Medical supplies. . . . . . . . .
. . . . . . $ 7,110 $ 9,252 $2,142 U
Lab tests . . . . . . . . . . . .
. . . . . . . . . 8,610 10,782 2,172 U
Equipment depreciation . . . . .
. . . . 1,900 2,100 200
U
Rent . . . . . . . . . . . . . .
. . . . . . . . . . 1,500 1,500 0
Utilities . . . . . . . . . . . .
. . . . . . . . . . 300 324 24 U
Administration. . . . . . . . . .
. . . . . . . 14,310 14,575 265 U
Total expense . . . . . . . . . .
. . . . . . . $33,730 $38,533 $4,803 U
Medical supplies. . . . . . . . .
. . . . . . . $11.85q
Lab tests . . . . . . . . . . . .
. . . . . . . . . . $14.35q
Equipment depreciation . . . . .
. . . . . $1,900
Rent . . . . . . . . . . . . . .
. . . . . . . . . . . $1,500
Utilities . . . . . . . . . . . .
. . . . . . . . . . . $300
Administration. . . . . . . . . .
. . . . . . . . $13,200 + $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?
TUTORIAL PREVIEW
1. Performance should
be evaluated using a flexible budget performance report. In this case, the
report will not include revenues.
|
KGV Blood
Bank
Flexible
Budget Performance Report
For the
Month Ended September 30
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Planning Budget
|
Activity Variances
|
Flexible Budget
|
Spending Variances
|
Actual Results
|
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|
Liters of blood
collected (q)
|
600
|
|
|
780
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
Medical supplies
($11.85q)
|
$ 7,110
|
$2,133
|
U
|
$ 9,243
|
$ 9
|
U
|
$ 9,252
|
File name: P10-22 KGV Blood Bank.doc File type: .doc PRICE: $7
