CHAPTER 8. 8.1 Consider the following 2007 data for Newark General Hospital (in millions of dollars):
Static Flexible Actual
Budget Budget Result
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 interpret the revenue variance
c Calculate and interpret the cost variance
d Calculate and interpret the volume and price variances on the
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?
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.
b Determine the variances for each line of the profit and loss statement, both in dollar terms and in percentage terms
c What do the Part b results tell Brandon’s managers about the surgery center’s operations for the quarter?
