Chelsea Clinic projected the following budget information for 2015: Total FFS Vi
ID: 2406583 • Letter: C
Question
Chelsea Clinic projected the following budget information for 2015: Total FFS Visit Volume Payer Mix: 90,000 visits Blue Cross 40% 60% Highmark Reimbursement Rates: Blue Cross $25 per visit $20 per visit Highmark Variable Costs Resource Inputs: Labor Supplies 48,000 total hours 100,000 total units Resource Input Prices: Labor $25.00 per hour $1.50 per unit $500,000 Supplies Fixed Costs (overhead, plant, and equipment) a. Construct Chelsea Clinic's operating budget for 2015. b. Discuss how each key budget assumption might result in a budget variance, and name the variance that would be used to examine results associated with each assumption.Explanation / Answer
Solution - 8.6:
1)
Chelsea clinic's static operating budget - Year 2015
Volume:
Blue Cross FFS
Highmark FFS
36,000
visits
Total budgeted visits
54,000
visits
Revenues:
Blue Cross FFS (25 * 36,000)
900,000
Highmark FFS (20 * 54,000)
1,080,000
Total budgeted revenues
1,980,000
Costs:
Variable Costs:
Labor (48,000 hours * $25)
1,200,000
Supplies (100,000* $1.50)
150,000
Total variable cost
1,350,000
Variable cost per visit ($1,350,000 / 90,000)
15
Fixed Costs:
Overhead, plant, and equipment
500,000
Total budgeted costs
1,850,000
Profit and Loss Statement
Revenues:
FFS
1,980,000
Total
1,980,000
Costs:
Variable
FFS
1,350,000
Total
1,350,000
Contribution margin
630,000
Fixed cost
500,000
Budgeted profit
130,000
2) Since the operating budget is constructed based on several assumptions, Chelsea Clinic can experience variances in revenue, cost, and/or profit. The revenue variance can be due to the changes in realized visit volume in comparison to the expectations, or in the price change per reimbursement rate per visit. The portion of the revenue variance would be reflected in the volume variance, and the portion resulting due to the changes in reimbursement rates would be reflected in the price variance. The variance in cost variance may be occurs due to the differences in realized visit volume and/or differences in input prices or differences in the effectiveness of utilization of inputs. The portion of the cost variance that occurs due to visit volume is known as the volume variance, and the portion of the cost variance that occurs because of other factors is known as the management variance. The net result of the revenue and cost variances is the profit variance
Chelsea clinic's static operating budget - Year 2015
Volume:
Blue Cross FFS
Highmark FFS
36,000
visits
Total budgeted visits
54,000
visits
Revenues:
Blue Cross FFS (25 * 36,000)
900,000
Highmark FFS (20 * 54,000)
1,080,000
Total budgeted revenues
1,980,000
Costs:
Variable Costs:
Labor (48,000 hours * $25)
1,200,000
Supplies (100,000* $1.50)
150,000
Total variable cost
1,350,000
Variable cost per visit ($1,350,000 / 90,000)
15
Fixed Costs:
Overhead, plant, and equipment
500,000
Total budgeted costs
1,850,000
Profit and Loss Statement
Revenues:
FFS
1,980,000
Total
1,980,000
Costs:
Variable
FFS
1,350,000
Total
1,350,000
Contribution margin
630,000
Fixed cost
500,000
Budgeted profit
130,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.