What are the profit variance and revenue variance

Assignment Help Cost Accounting
Reference no: EM13175353

Part-1

1 Assume that the managers of Fort Winston Hospital are setting the price on a new outpatient service. Here are relevant data estimates:

Variable cost per visit $ 5.00

Annual direct fixed costs $500,000

Annual overhead allocation $ 50,000 Expected annual utilization 10,000

  1. What per-visit price must be set for the service to break even? To earn an annual profit of $100,000?
  2. Repeat Part a, but assume that the variable cost per visit is $10.
  3. Return to the data given in the problem. Again repeat Part a, but assume that direct fixed costs are $1,000,000.
  4. Repeat Part a assuming both $10 in variable cost and $1,000,000 in direct fixed costs.

2 The audiology department at Randall Clinic offers many services to the clinic"s patients. The three most common, along with cost and utilization data, are as follows:

Service Variable Cost Annual Direct Annual # Visits

per Service Fixed Costs

Basic exam $5 $50,000 3,000

Advanced examination $7 $30,000 1,500

Therapy session $10 $40,000 500

  1. What is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed costs?
  2. Assume that the audiology department is allocated $100,000 in total overhead by the clinic, and the department director has al­ located $50.000 of this amount to the three services listed above. What is the fee schedule assuming that these overhead costs must be covered? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of number of visits.)
  3. Assume that these services must make a combined profit of $25,000 . Now what is the fee schedule? (To answer this question, assume that the profit requirement is allocated in the same way as overhead costs.) lied Laboratories is combining some of its most common

3 Allied Laboratories is combining some of its most common tests into one-price packages. One such package will contain three tests that have the following variable costs:

Test A Test B Test C

Disposable syringe $3.00 $3.00 $3.00

Blood vial 0.50 0.50 0.50

Forms 0.15 0.15 0.15

Reagents 0.80 0.60 1.20

Sterile bandage 0.10 0.10 0.10

Breakage/losses 0.05 0.05 0.05

When the tests are combined, only one syringe, form, and sterile ban­dage will be used. Furthermore, only one charge for breakage/losses will apply. Two blood vials are required, and reagent costs will remain the same (reagents from all three tests are required).

  1. As a starting point, what is the price of the combined test assuming marginal cost pricing?
  2. Assume that Allied wants a contribution margin of $10 per test. What price must be set to achieve this goal?
  3. Allied estimates that 2,000 of the combined tests will be conduct­ed during the first year. The annual allocation of direct fixed and overhead costs total $40,000. What price must be set to cover full costs? What price must be set to produce a profit of $20,000 on the combined test?

4 Assume that Valley Forge Hospital has only the following three payer groups:

Number of Average Revenue Variable Cost

Payer Admissions per Admission per Admission

PennCare 1,000 $5,000 $3,000

Medicare 4,000 4,500 4,000

Commercial 8,000 7,000 2,500

The hospital"s fixed costs are $38 million,

  1. What is the hospital"s net income?
  2. Assume that half of the 100.000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain its Part a net income?
  3. What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent?
  4. Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200?

Part-2

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?

2 Here are the 2011 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:

  • Revenue variance
  • Volume variance
  • Price variance
  • Enrollment variance

3 Here are the budgets of Brandon</st1:placename> Surgery</st1:placename> Center</st1:placetype></st1:place> 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 bud­ get 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 atotal variance, a volume variance, and a price variance [for revenues and management variance [for expenses].)

c. What do the Part b results tell Brandon</st1:place></st1:city>"s managers about the surgery center"s operations for the quarter?

4 Refer to Carroll Clinic"s 2011 operating budget contained in Exhibit 8.3, Instead of the actual results reported in Exhibit 8.4, assume the results reported below:

Carroll Clinic: New 2011 Results

/. Volume:

A. FFS 34,000 visits

B. Capitated lives 30,000 members Number of member-months 360,000

Actual utilization per

member-month 0.12

Number of visits 43,200 visits

C. Total actual visits 77,200 visits

II. Revenues:

A.FFS $28 per visit

X 34,000 actual visits $ 952,000

B. Capitated lives $ 2.75 PMPM

X 360,000 actual member-months $ 990,000

C.Total actual revenues $1,942,000

III. Costs:

A. Variable Costs:

Labor $1,242,000 (46,000 hours at $27/hour)

Supplies 126,000 (90,000 units at $1.40/unit)

Total variable costs $ 17.72 ($1,368,000 / 77,200)

B. Fixed Costs

Overhead, plant,

and equipment $525,000

C. Total actual costs $1,893,000

IV. Profit & Loss Statement:

Revenues:

FFS $952,000

Capitated $990,000

Total $1,942,000

Costs:

Variable:

FFS $602,487

Capitated 765,513

Total $1,368,000

Contribution Margin $574,000

Fixed Costs 525,000

Actual profit $49,000

  1. Construct Carroll's flexible budget for 2011.
  2. What are the profit variance, revenue variance, and cost variance?
  3. Consider the revenue variance. What is the component volume variance? The price variance?
  4. Break down the cost variance into volume and management components.
  5. Break down the management variance into labor, supplies, and fixed cost variances.
  6. Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter.

Reference no: EM13175353

Questions Cloud

What are the equilibrium constants for the two equilibria : Assuming the enthalpies are equivalent to free energies (they arent, but lets make the assumption for the moment), what are the equilibrium constants for the two equilibria in the gas phase?
What are the health consequences of athletic supplements : How are crops genetically modified? What are the health consequences of athletic supplements? How do fuel cells work? How does aspirin cure headaches?
Effect of imposed tarrif on economic well-being of a nation : What is the effect on the economic well-being of a nation when a tariff is imposed? Consult a newspaper and identify an industry where there currently is a tariff. What is the effect of this tariff on the U.S. economy?
State the xeno-mitochondrial membrane : The only difference is the H+-ATP stoichiometry. Given that the pH on the outside of the xeno-mitochondrial membrane is 6.014,
What are the profit variance and revenue variance : What are the profit variance, revenue variance, and cost variance and consider the revenue variance. What is the component volume variance? The price variance and break down the cost variance into volume and management components.
Explain charge-transfer absorption in the visible region : Please explain why [Fe(CN)6]3- shows a charge-transfer absorption in the visible region of the spectrum and another in the ultraviolet region, while [Fe(CN)6]4- shows only a charge-transfer
Explain current health of the economy : Explain what the new equilibrium point means in terms of GDP and the price level. Based on your understanding of the current health of the economy, was this program successful? Why do you say this?
Develop the first months transactions : Develop the first month's transactions. Prepare the first month's journal entries based on your chart of accounts.
Muriatic acid is a hcl solution available in hardware stores : Muriatic acid is a HCl solutin available in hardware stores. A 3.00-ml sample of muriatic acid required 15.44 ml of 2.04 M NaOH for complete neutralization

Reviews

Write a Review

 

Cost Accounting Questions & Answers

  Classical analysis of misinformation in management

Indicate the most negative potential impacts on business operations related to these assumptions. Provide support for your rationale.

  Evaluate what percentage interest in the pool

Evaluate what percentage interest in the pool is held by town and the school district and show entry in the Investment Trust Fund to record the School District's investment in the pool.

  Evaluate the standard price per pound

The materials price variance was $80,000 favorable. Evaluate the standard price per pound?

  Evaluate managements discussion and analysis

Evaluate managements discussion and analysis

  Determine the provided expressions

Determine the provided expressions using the a, b, and c from your birth date.

  Analyses test market economic

Provide the revised figures in the Payoff Table below complete the evaluation for the five EMV's. Show your logic and calculations and evaluate the BatesManor dollar sales at retail prices in their average store. Describe your reasoning and state a..

  When fictitious refund finished for merchandise

When a fictitious refund is finished for merchandise returned find what is the problem that the fraudster must solve in order for the fraud to be undetected

  Analyse the physical internal control weaknesses

Analyse the physical internal control weaknesses in the system. Model your response according to the six categories of physical control activities specified in the COSO internal control model.

  Identify the bond rating of the reporting entity

What challenges does the city face based on a review of the Management, Discussion, and Analysis?

  Find how much clay should be purchased in september

The company needs to maintain monthly ending inventories of clay equal to 20% of the subsequent month's production required. On August 31, 18,000 pounds of clay were on hand.

  Find how much direct labor should be budgeted for june

Looker Hats is planning to sell 600, and produce felt hats 700 during June. Each hat requires 1/2 yard of felt and 1/4 hour of direct labor. Felt costs $3.00 per yard and employees of the company are paid $20 per hour. Find How much direct labor s..

  What is capitals after-tax wacc

what is Capital's after-tax WACC and what balance could appear in the investment in Holister account as of December 31, 2009?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd