8.1 Consider the following 2011 data for Newark General Hospital (in millions of dollars): Static              Flexible         Actual Budget                        Budget          Results Revenues                            …

8.1

Consider the following 2011 data for Newark General Hospital (in millions of dollars):

Static              Flexible         Actual

Budget                        Budget          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?

8.4

Refer to Carroll Clinic‘s 2011 operating budget contained in Exhibit 8.3, Instead of the actual results reported in Exhibit 8.4, assume the results reported below:

Carroll Clinic: New 2011 Results

/.      Volume:

A.         FFS                                                                              34,000  visits

B.         Capitated lives                                                              30,000  members

Number of member-months                                           360,000

Actual utilization per

member-month                                                              0.12

Number of visits                                                                        43,200 visits

C.         Total actual visits                                                          77,200 visits

II.   Revenues:

A.FFS                                                      $28   per visit

X 34,000  actual visits $   952,000

B.            Capitated lives                                     $          2.75  PMPM

X 360,000   actual member-months $  990,000

C.Total actual revenues                            $1,942,000

III. Costs:

A. Variable Costs:

            Labor                                        $1,242,000 (46,000 hours at $27/hour)

            Supplies                                   126,000 (90,000 units at $1.40/unit)

                        Total variable costs       $          17.72 ($1,368,000 / 77,200)

B. Fixed Costs

            Overhead, plant,

            and equipment              $525,000

C. Total actual costs                  $1,893,000

IV. Profit & Loss Statement:

            Revenues:

                        FFS                              $952,000

                        Capitated                      $990,000

                                    Total                 $1,942,000

            Costs:

                        Variable:

                                    FFS                  $602,487

                                    Capitated          765,513

                                                Total     $1,368,000

            Contribution Margin                   $574,000

            Fixed Costs                              525,000

            Actual profit                              $49,000

1. Construct Carroll’s flexible budget for 2011.

1. What are the profit variance, revenue variance, and cost variance?

1. Consider the revenue variance. What is the component volume variance? The price variance?

1. Break down the cost variance into volume and management components.

1. Break down the management variance into labor, supplies, and fixed cost variances.