Healthcare Accounting Finance Problem 8.1 from page 279, Chapter 8 Consider the

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Question

Healthcare Accounting Finance

Problem 8.1 from page 279, Chapter 8

Consider the following 2011 data foe Newark General Hospital (in millions of dollars):

Static Budget: Revenues $4.7, Costs 4.1, Profits 0.6

Felxible Budget: Revenues $4.8, Costs 4.1, Profits 0.7

Actual Results: Revenues 44.5, Costs 4.2, Profits 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 variance 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?

Questions

8.1 Why aare planning and budgeting so important to an organization's success?

8.2 Briefly describe the planning process. Be sure to include summaries of the strategic, operating, and financial plan.

8.3 Describe the components of a financial plan.

A). Calculate and interpret the profit variance.

Answer:

Profit Variance = Actual Profits - Flexible Budget Profits = 0.3 – 0.7 = 0.4 Unfavorable

Actual Profits are less than budgeted profits, hence variance is unfavorable.

B).Calculate and interpret the revenue variance.

Answer:

Revenue Variance = Actual Revenue - Flexible Budget Revenue = 4.5 – 4.8 = 0.3 Unfavorable

Actual Revenue is less than budgeted Revenue, hence variance is unfavorable.

C). Calculate and interpret the cost variance.

Answer:

Cost Variance = Actual Cost - Flexible Budget Cost = 4.2 – 4.1 = 0.1 Unfavorable

Actual Cost is more than budgeted Cost, hence variance is unfavorable.

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