Assignment: Budget Actual Results

Assignment: Budget Actual Results

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8.1 Consider the following 2007 data for Newark General Hospital (in millions of dollars):

Static Budget Flexible Budget Actual Results

Revenues $4.7 $4.8 $4.5

Costs 4.1 4.1 4.2

Profits 0.6 0.7 0.3

a Calculate and interpret the profit variance

b Calculate and interpret the revenue variance

c Calculate and interpret the cost variance

d Calculate and interpret the volume and price variances on the revenue

side

e Calculate and interpret the volume and management variances on the

cost side

f How are the variances calculated above related?

8.2 Here are the 2007revenuesfor the Wendover Group Practice Association

for four different budgets, in thousands of dollars

Static Budget Flexible(Enrollment/Utilization budget) Flexible (Enrollment) Budget Actual Results

$425 $200 $180 $300

a What does the budget data tell you about the nature of Wendover’s

patients: Are they capitated or fee-for-service? (Hint: See the note to

Figure 8.2

b Calculate and interpret the following variances

Revenue variance

Volume variance

Price variance

Enrollment variance

Utilization variance

8.3 Here are the budgets of Brandon Surgery Center for the most recent

historical quarter, in thousands of dollars:

Static flexible Actual

Number of Surgeries 1,200 1,300 1,300

Patient revenue $2,400 $2,600 $2,535

Salary expense 1,200 1,300 1,365

Non-salary expense 600 650 585

Profit $ 600 $ 650 $ 585

The center assumes that all revenues and costs are variable and hence tied

directly to patient volume.

a Explain how each amount in the flexible budget was calculated. (Hint

: Examine the static budget to determine the relationship of each budget

line to volume

b Determine the variances for each line of the profit and loss

statement, both in dollar terms and in percentage terms. (Hint: Each line

has a total variance, a volume variance, and a management variance

c What do the Part b results tell Brandon’s managers about the surgery

center’s operations for the quarter?

Explain how each amount in the flexible budget was calculated. (Hint

: Examine the static budget to determine the relationship of each budget

line to volume

b Determine the variances for each line of the profit and loss

statement, both in dollar terms and in percentage terms. (Hint: Each line

has a total variance, a volume variance, and a management variance

c What do the Part b results tell Brandon’s managers about the surgery

center’s operations for the quarter?

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