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

 

 

 

                                    Static                                   Flexible                  Actual

 

                                    Budget                                 Budget                   Result

 

Revenues                     $4.7                                      $4.8                       $4.5

 

Cost                               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

 

 

 

8.2 Here are the 2007 revenues for the Wendover Group Practice Association for four different budgets, in thousands of dollars:

 

 

 

                                              Flexible                              Flexible

 

Static                             (Enrollment/Utilization)       (Enrollment)                  Actual

 

Budget                            Budget                                      Budget                      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?

 

 

 

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.

 

 

 

 

 

b Determine the variances for each line of the profit and loss statement, both in dollar terms and in percentage terms

 

 

 

c What do the Part b results tell Brandon’s managers about the surgery center’s operations for the quarter?