A report prepared by a government official comparing actual costs to budgeted costs for the Blood Bank appears below. (The currency on Antigua is the East Caribbean dollar.) Continued support from the government depends on the Blood Bank’s ability to demonstrate control over its costs.
Antigua Blood Bank
Cost Control Report
For the Month Ended September 30
Actual Budget Variance
Liters of blood collected 320 240 80
Medical supplies $ 4,650 $ 3,360 $ 1,290 U
Lab tests 2,800 2,760 40 U
Refreshments for donors 2,188 1,488 700 U
Administrative supplies 620 480 140 U
Total variable cost 10,258 8,088 2,170 U
Staff salaries 8,000 8,000 0
Equipment depreciation 1,400 1,000 400 U
Rent 500 500 0
Utilities 250 225 25 U
Total fixed cost 10,150 9,725 425 U
Total cost $20,408 $17,813 $2,595 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.
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 as overhead, the flexible budget approach can still be used to prepare a flexible budget performance report.)
2. Do you think any of the variances in the report you prepared should be investigated? Why?