Reference no: EM132581122

The Centrico Medical Laboratory, a government-sponsored charity, is located on the island of Ste. Lucretia. The laboratory has just finished its operations for September, which was a particularly busy month due to a chemical spill that affected a few neighboring small islands, causing many illnesses. The chemical spill and contamination largely bypassed Ste. Lucretia's water supply, but residents of Ste. Lucretia willingly donated supplies and the laboratory assisted in the medical testing to help people on other islands. 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 in Ste. Lucretia is the East Caribbean dollar.)

Continued support from the government depends on the lab's ability to demonstrate control over its costs:

CENTRICO     MEDICAL      LABORATORY

cost control report

for the month ended September 30

                                                actual                 static budget                 static budget variance

Laboratory samples collected . . . .   920                       700                             220

Variable costs:

Medical supplies . . . . . . . . . . . . . .  $ 14,878              $ 10,640                      $4,238

Lab tests . . . . . . .                          .16,173               12,915                    3,258

Refreshments for staff and volunteers. . 1,779                1,435                     344

Administrative supplies. . . . . .                 284                490                  (206)

Total variable cost. . . . . .                     33,114            25,480              7,634

Fixed costs:

Staff salaries. . . . . . . . . . .                   19,800                  19,800              0

Equipment depreciation . . . .                     3,150                  2,850             300

Rent. . . . . . . . .                                   2,250                     2,250                 0

Utilities . . . . .                                     486                          450                 36

Total fixed cost . . . .. . .                    25,686                          25,350          336

Total cost. . . . . .. . .                         $58,800                          $50,830     $ 7,970

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 neighboring islands. He also points out that the additional costs were fully covered by payments from grateful recipients on the other islands. 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:

Question 1. 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 flexible budget performance report. Use Exhibit 9-4 as your guide.)

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