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?
8.2 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? (Hint: See the note to Exhibit 8.7.)
b. Calculate and interpret the following variances:
o Revenue variance
o Volume variance
o Price variance
o Enrollment variance
o 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 price variance [for revenues and management variance [for expenses].)
c. What do the Part b results tell Brandon's managers about the surgery center's operations for the quarter?