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




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?  






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