Activity & Spending Variance: KGV Blood Bank, SecuriDoor Corporation, Toque Cooking Academy

The KGV 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 30% 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 is given 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.

KGV Blood Bank
Cost Control Report
For the Month Ended September 30

Planning
Budget

Actual
Results

Variances

Liters of blood collected

600

780

Medical supplies

$

7,110

9,252

2,142

U

Lab tests

8,610

10,782

2,172

Equipment depreciation

1,900

2,100

200

Rent

1,500

Utilities

300

3

24

Administration

14,310

14,575

265

Total expense

33,730

38,533

4,803

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:

$11.85q

$14.35q

$1,900

$1,500

$300

$13,200 + $1.85q

Required:

1.

Complete the performance report for September using the flexible budget approach. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

The Toque Cooking Academy runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run four courses in a month and have a total of 60 students enrolled in those four courses. Data concerning the company’s cost formulas appear below:

Fixed Cost per Month

Cost per Course

Cost per
Student

Instructor wages

$

2,980

Classroom supplies

310

Utilities

1,230

85

Campus rent

5,100

Insurance

2,340

Administrative expenses

3,940

46

7

For example, administrative expenses should be $3,940 per month plus $46 per course plus $7 per student. The company’s sales should average $850 per student.

The actual operating results for October appear below:

Actual

Revenue

48,100

11,200

18,450

1,980

2,480

3,970

Required:

1.

The Toque Cooking Academy expects to run four courses with a total of 60 students in October. Complete the company’s planning budget for this level of activity. (Input all amounts as positive values. Omit the “$” sign in your response.)

Toque Cooking Academy
Planning Budget
For the Month Ended October 31

$

Expenses:

Total expense

Net operating income

2.

The school actually ran four courses with a total of 58 students in October. Complete the company’s flexible budget for this level of activity. (Input all amounts as positive values. Omit the “$” sign in your response.)

Toque Cooking Academy
Flexible Budget
For the Month Ended October 31

3.

Complete the flexible budget performance report that shows both activity variances and revenue and spending variances for October. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

Toque Cooking Academy
Flexible Budget Performance Report
For the Month Ended October 31

Activity Variances

Revenue and Spending Variances

You have just been hired by SecuriDoor Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for April:

Cost Formula

Actual Cost in April

Utilities

$

16,500 plus $0.15 per machine-hour

21,300

Maintenance

$38,600 plus $1.80 per machine-hour

68,400

Supplies

$0.50 per machine-hour

9,800

Indirect labor

$94,300 plus $1.20 per machine-hour

119,200

Depreciation

$68,000

69,700

During April, the company worked 18,000 machine-hours and produced 12,000 units. The company had originally planned to work 20,000 machine-hours during April.

Required:

1.

Complete the report showing the activity variances for April. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)

2.

Complete the report showing the spending variances for April. (Input all amounts as positive values. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.)