A new viral disease sweeps the nation: gray squirrel encephalitis. The disease can be transmitted via blood products. Blood donor centers are required to screen each donor's blood for gray squirrel encephalitis. This immediately increases the cost of blood products by 10%. Describe the budget process for dealing with this sudden change.
What will be an ideal response?
Variance analysis is done soon after the price increase is announced. The Blood Bank's operating budget will be compared to the current expenditures to show the 10% increase in blood product costs in the Supply budget category. Managers will calculate the size of the variance and look at cash flow to see if there is enough money to cover the increased supply costs. If not, then the administrators can look at other department budgets that might be able to transfer funds to Blood Bank via a budget amendment.
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