The following data represents the budgets (in thousands of dollars). Simple Flex
ID: 2643866 • Letter: T
Question
The following data represents the budgets (in thousands of dollars).
Simple
Flexible
Actual
# of surgeries
1,500
1,400
1,400
Patient Revenue
6,000
5,600
5,400
Salary Expense
4,500
4,200
4,500
Non salary expense
750
700
800
Profit
750
700
100
Assume that all revenue and costs are variable and therefore 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 P&L statement, both in dollar terms and in percentage terms.
C. What do the results tell the managers of the center about the operations for the period of time?
Simple
Flexible
Actual
# of surgeries
1,500
1,400
1,400
Patient Revenue
6,000
5,600
5,400
Salary Expense
4,500
4,200
4,500
Non salary expense
750
700
800
Profit
750
700
100
Explanation / Answer
Each amount in flexible budget is calculated on the basis of proportion,
Patient revenue is calculated as follows:
When number of surgeries are 1500 then the revenue is 6,000 and when the number of surgries are 1400 then the revenue is (6000/1500)*1400 = 5600
When number of surgeries are 1500 then the salary expense is 4,500 and when the number of surgries are 1400 then the revenue is (4500/1500)*1400 = 4200
When number of surgeries are 1500 then the non salary expense is 750 and when the number of surgries are 1400 then the revenue is (750/1500)*1400 = 700
B. Variance of each P&L line item:
C. The operation for the period of time is earning less profit as compare to flexible budget. Actual number of surgeries are same as the flexible budget, but the revenue is less then the budget and the salary an non salary expenses are also over the budget.
Flexible Budget Actual Variance Variance in % Number of surgeries 1,400,000 1,400,000 - 0.0% Revenue 5,600,000 5,400,000 (200,000) -3.7% Salary expense 4,200,000 4,500,000 300,000 6.7% Non salary expense 700,000 800,000 100,000 12.5% Profit 700,000 100,000 (600,000) -600.0%Related Questions
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