Problem: Let's assume a walk-in medical clinic offers a routine medical procedure and incurs the following costs:
Medical resident's salary (0.5 hr per patient at $80 per hr) $40
Other variable costs (medical supplies) per patient $14
Fixed cost of clinic per month $6,000
Suppose management estimates for budgetary purposes that 3,600 patients will be treated in a year. Under a static budget, this translates to 300 patients each month and the estimated total monthly costs are:
Estimated number of medical procedures 300
Medical resident salary (0.5 hr x $80 per hr x 300 patients) $12,000
Other variable expense ($14 x 300 patients) 4,200
Fixed cost of clinic per month 6,000
Total monthly budgeted cost $22,200
Using a flexible budget, it is a simple matter to calculate total estimated cost at different output levels and evaluate performance. If 380 medical procedures were actually performed during the month then the budgeted monthly cost should be: