Problems for finance class 8.1, 8.2, 8.3 A

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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