The St. Lucia 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 neighbouring islands, causing many injuries. The hurricane largely bypassed St. Lucia, but the residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed 24% 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.

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 neighbouring 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.

Required:

1. Prepare a new performance report for September using the flexible budget approach. (Note: Even though some of these costs might be classified as direct costs rather than overhead, the flexible budget approach can still be used to prepare a flexible budget performance report.) Organize your report using the format of Exhibit 11?7. Show four columns (actual, flexible budget, variance, and static budget).

2. Do you think any of the variances in the report you prepared should be investigated? Why?

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ST. LUCIA BLOOD BANK Cost Control Report For the Month Ended September 30 Actual Budget Variance Litres of blood collected 620 500 120 F Variable costs: $ 9,350 $ 7,500 Medical supplies $1,850 U Lab tests 180 U 6,180 6,000 Refreshments for donors 1,340 1,000 340 U Administrative supplies 400 250 150 U Total variable cost 17.270 14.750 2.520 U Fixed costs: 10,000 Staff salaries 10,000 Equipment depreciation 300 U 2,800 2,500 1,000 Rent 1,000 Utilities 500 70 U 570 Total fixed cost 14.370 14.000 370 U $31,640 Total cost $28,750 $2,890 U