Budgetary Variance Model:
You are evaluating the performance of the radiology department manager. The service unit or output for this department is the number of procedures. A static budget was prepared at the beginning of the year. You are now examining that budget in relation to actual experience. The relevant data are included in Table.
The department manager is pleased because he has a favorable $120,000 cost variance. Evaluate the effectiveness claims of the manager using the budgetary variance model described in this chapter.
Table
Radiology Department Data
Actual Original Budget Variance
Procedures 100,000 120,000 20,000 (Unfavorable)
Variable Cost $1,200,000 $1,320,000 $120,000 (Favorable)
Fixed Cost 600,000 6000,000 ___
Total Cost $1,800,000 $1,920,000 $120,000 (Favorable)
Average cost per unit $18.00 $16.00
Variable cost per Unit $12.00 $11.00
Fixed Cost per Unit $6.00 $5.00
Required Text:
Cleverley, W. O., Song, P. H., & Cleverley, J. O. (2011). Essentials of health care finance (7th ed). Sudbury, MA: Jones & Bartlett Learning.