The Koala Medical Laboratory, a government sponsored company in the Eastern Carribean, has just finished its operations for April, which was a particularly busy month due to an oil spill that affected a few neighbouring small towns, causing many illnesses. The oil spill and contamination largely bypassed the towns water supply, but residents of the town were donating supplies while the laboratory assisted in the medical testing to help people of other towns. As a consequence, the medical laboratory collected and processed over 25% more laboratory samples from potentially ill residents than had been originally planned for the month. A report prepared by a government official comparing actual costs to costs included in the static budget for the medical laboratory appears below. (The currency is the East Caribbean dollar.) Continued support from the government depends on the lab's ability to demonstrate control over its costs: KOALA MEDICAL LABORATORY Cost Control Report For the Month Ended April 30 Static Budget Variance 240.00 Static Budget 790.00 Actual 1,030.00 Laboratory samples collected Variable costs: Medical supplies Lab tests Refreshments for staff and volunteers Administrative supplies $ 16, 980.00 18, 648.00 1, 841.00 235.00 $12, 324.00 14, 931.00 1, 501.00 395.00 $4, 656.00 3, 717.00 340.00 (160.00) Total variable cost 37, 704.00 29, 151.00 8,553.00 Fixed costs: Staff salaries Equipment depreciation Rent Utilities 20, 700.00 3, 188.00 2, 700.00 526.00 20, 700.00 2, 940.00 2, 700.00 495.00 0 248.00 0 31.00 Total fixed cost 27, 114.00 26, 835.00 279.00 Total cost $64, 818.00 $55, 986.00 $8,832.00 The managing director of the medical laboratory is very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighbouring islands. He also points out that the additional costs were fully covered by payments from grateful recipients of the other towns. The government official who prepared the report counters that all of the figures were submitted by the medical laboratory to the government; he was just pointing out that actual costs were considerably higher than promised in the budget. Required: 1. Explain what is wrong with the report from the government agent. Why are all the variances unfavourable? 2. Prepare a new performance report for September using the flexible budget approach. (Note: Even though there are no revenues in this setting, the flexible budget approach can still be used to prepare a flexible budget performance report. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Round your answers to 2 decimal places.) Centrico Medical Laboratory Flexible Budget Performance Report For the Month Ended September 30 Flexible Actual Costs Budget Cost Formula Incurred for Based on (per unit) 1,030 Lab 1,030 Lab samples samples Costs Flexible Budget Variance Variable costs: Medical supplies Lab tests Refreshments for staff and volunteers Administrative supplies Total variable cost $ 0.00 0.00 0.00 Fixed costs: Staff salaries Equipment depreciation Rent Utilities Total fixed cost 0.00 0.00 Total cost $ 0.00 $ 0.00