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?
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