(Solved by Humans)-PROBLEM 9–25 Applying the Flexible Budget Approach [LO3, LO4] The Centrico Medical Laboratory, a...

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  PROBLEM 9–25 Applying the Flexible Budget Approach [LO3, LO4] 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 par- ticularly busy month due to a chemical spill that affected a few neighbouring 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       Static Static Budget Actual 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, claim- ing 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 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: 1.               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. Use Exhibit 9–4 as your guide.) 2.               Do you think any of the variances in the report you prepared should be investigated? Why?