Consider the following 2011 data for General Hospitals (in millions of dollars)_

Question

Consider the following 2011 data for General Hospitals (in millions of dollars)_______________ __________Simple Budget____________Flexible Budget____________Actual Budget__________________ Revenue______$4.7$___________________4.8_______________________$4.5_____________________ Cost___________4.1____________________4.1 _______________________4.2_____________________ Profit__________0.6____________________0.7_______________________0.3_________________________________ ____________ 1Canculate and interpret the two profit variances_ 2 Calculate and interpret the two revenue variances 3 Calculate and interpret the two cost variance 4how are the variances related ?

Explanation / Answer

general help:

1.

Calculate the budgeted, or expected, profit for some time period. This is usually based on market research or historical returns. As an example, if the average sales person made $6,000 in profit for the company in each of the past 5 months, you might expect any sales person to achieve $6,000 in the next month. Therefore the expected profit is $6,000 for the next month.

Calculate the actual profit for the same time period. In the example, say a sales person sold 5 units at $10,000 each. The cost associated with each unit is $8,000. To calculate the actual profit, you would subtract the cost of the unit from the sales price, i.e., $2,000 each, and multiply that by the number of units sold. Therefore, the actual profit is $10,000.

Subtract the actual profit from the expected profit. In the example, the expected profit for the sales person was $6,000, but the actual profit was $10,000, resulting in a difference of $4,000.

Notate the figure. Profit increases are notated with an "F" after the figure; profit decreases are notated with an "A". In the example, you would write a profit variance of "$4,000F," which means a favorably increase. This tells you that the sales person is out-performing expectations, which is something you might want to reward to encourage future efforts of similar magnitude.

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