The St. Lucia Blood Bank, a private charity partly supported by government grant
ID: 2462562 • Letter: T
Question
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 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 below. Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.
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 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 below. Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.
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 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 below. Continued support from the government depends on the blood bank's ability to demonstrate control over its costs St. Lucia Blood Bank Cost Control Report For the Month Ended September 30 Actual Planning Results Budget Variances 680 Liters of blood collected Medical supplies Lab tests Equipment depreciation Rent 500 $ 7,950 $ 5,800 $2,150 U 9,313 7,125 2,188 U 1,560 ,300 260 U 1,500 1,500 300 14.200 4.050 328 28 U 150 U Administration Total expense $34,851 $ 30,075 $4,776 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 Medical supplies Lab tests Equipment depreciation Rent $11.60q $14.25q $1,300 $1,500 $300 Administration $13,200$1.70qExplanation / Answer
This is not wthee way of comapring the planned vs actual budget. As here the variance in cost is mainly due to increase in the services provided because of unexpected event occured. The no of literes of blood provided increased and correspondingly the actual cost increased.
It is better if we prepare flexible budget using the new no of literes of blood provided and compare thsi numbers with the actual numbers gives the correct picture if they actually crossed the cost i.e unfavourable variance is there or not.
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