A clinic at unniversity is run as a profit center. The dean of student services

Question

A clinic at unniversity is run as a profit center. The dean of student services was reviewing the expenses on last month's financial report for the clinic, which also treated non-students on a fee-forservice basis. During the month the buildings furnace needed to be replaced, and the non-student department of the clinic was charged $400 for its share in addition to its normal fixed overhead assessment, which was $800. The dean was concerned because actual departmental expenses exceed budget but then noticed that 250 non-student patients had been treated, compared to a budget estimate of 150. and costs to serve the patients per unit were 10 percent below the $85.00 budgeted.

Questions:

a. How much was the total expenses variance? Was it favorable or unfavorable?

b. what was the variance for the variable costs? was it favorable or unfavorable?

c. what was the flexible budget estimate?

d. what was the volume variance for the patient costs? the cost variance for patient costs?

Explanation / Answer

Assume no of student budgeted for treatment= k Budgted no of non studendts=                    150 85*(k+150)=85*0.90*(k+250) 85k+12750=76.5k+19125 k=750 So no of students budgeted =750 Budgeted Variable Expense=750*85=              63,750 Add Budgeted Ovehead                      800 Total Budgeted Expense              64,550 Actual Variable Expense=1000*85*0.90=              76,500 Add : Overhea charged                 1,200 Total Actual Expense              77,700 a Actual Expense Variance=              13,150 unfavorable b Variable Expense variance =              12,750 unfavorable c Flexible Budget Estimate for 750 students and 250 non students : Variable Expense @85=              85,000 Patient Cost Volume variance =Variable budget -Variable flexible budget=              21,250 Unfavorable Cost Variance for Patient Cost= Variable Flexible budget -Variable Actual cost=                 8,500 Favorable

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