8.3 Here are the budgets of Brandon Surgery Center for the most recent historica

Question

8.3 Here are the budgets of Brandon Surgery Center for the most recent historical quarter (in thousands of dollars):

                                                Static                           Flexible                       Actual

Number of Surgeries                 1,200                           1,300                         1,300

Patient Revenue $2,400                           $2,600                         $2,535

Salary Expense 1,200                           1,300                         1,365

Non-Salary Expense 600                                650                              585

Profit                                      $600                            $650                            $585

The center assumes that all revenues and costs are variable and hence tied directly to patient volume.

     A. Explain how each amount in the flexible budget was calculated. (Hint: Examine the static budget to determine the relationship of each budget line to volume.)

     B. Determine the variances for each line of the profit and loss statement, both in dollar terms and in percentage terms. (Hint: Each line has a total variance, a volume variance, and a price variance for revenues and management variance for expenses.)

     C. What do the Part B results tell Brandon’s managers about the surgery center’s operations for the quarter?

Explanation / Answer

Statement Showing Amount of Flexible Budget is Calculated Particulars Static Flexible No. of Surgeries 1200 1300 Patient Revenue $2,400 $2,600 ($2400/1200) X 1300 Salary Expense $1,200 $1,300 ($1200/1200) X 1300 Non Salary Expense $600 $650 ($600/1200) X 1300 Profit $600 $650 ($600/1200) X 1300 Calculation of Variances Particulars Static Actual Total Variance Volume Price In $ In % Variance Variance No. of Surgeries 1200 1300 Patient Revenue $2,400 $2,535 $135 U -5.63% $200 F $65 U (1200-1300) X $2 (2 - 1.95) X 1300 Salary Expense $1,200 $1,365 $165 U -13.75% 100 U $65 U (1200 -1300) X $1 ($1 -1.05) X 1300 Non Salary Expense $600 $585 $15 F 2.50% $50 U $65 F (1200 -1300) X $0.50 ($0.50 - .45) X 1300 Total Variance = (Standard - Actual) X Actual No. Volume Variance = (Standard - Actual) X Standard Rate Price Variance = (Standard Rate - Actual Rate) X Actual No Answer C. 1. Results tell Brandon's Manager about Surgery Center are as follows: a. The Volume of the patients has been increased by $200, but the revenue per patient has been decreased from $2 to $1.95 per patient. b. Salary Expenses has been increased and it is more than budgeted per patient from $1 to $1.05 per patient. C. Non Salary Expenses has been decreased and it is less than budgeted per patient from $0.50 to $0.45 per patient.

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