View the step-by-step solution to:

Problem 8.1 Consider the following 2007 data for Newark General Hospital (in millions of dollars) Static Flexible Actual Budget Budget Results...

This question was answered on Jan 29, 2013. View the Answer
Problem 8.1
Consider the following 2007 data for Newark General Hospital (in millions of dollars)

Static Flexible Actual
Budget Budget Results
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 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?

Problem 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 Figure 8.2.)
b. Calculate and interpret the following variances:
• Revenue variance
• Volume variance
• Price variance
• Enrollment variance
• Utilization variance

Problem 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?
Sign up to view the entire interaction

Top Answer

Hi Student, please find... View the full answer


a. Calculate and interpret the profit variance.
Profit variance is the difference between actual profit and budgeted profit.
Profit Variance = $.3 - $.6 = -$300,000
It shows that the...

This question was asked on Jan 29, 2013 and answered on Jan 29, 2013.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors and customizable flashcards—available anywhere, anytime.


Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access or to earn money with our Marketplace.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
  • -


    Browse existing sets or create your own using our digital flashcard system. A simple yet effective studying tool to help you earn the grade that you want!

    Browse Flashcards