Reference no: EM131976869

8.1 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?

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 Exhibit 8.7.)

b. Calculate and interpret the following variances:

o   Revenue variance

o   Volume variance

o   Price variance

o   Enrollment variance

o   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. (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 price variance [for revenues and management variance [for expenses].)

c. What do the Part b results tell Brandon's managers about the surgery center's operations for the quarter?