Here are the budgets of Brandon Surgery Center for the most recent historical qu
ID: 2446551 • Letter: H
Question
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
Solution :
A. Calculation of flexible budget
Patient Revenue (1300 x 2000)
2,600,000
Salary Expense (1300 x 1000)
1,300,000
Non-Salary Expense (1300 x 500)
650,000
Profit (2600000-1300000-650000)
650,000
B. Variances :
revenue variance
total variance in dollars = actual amount - static amount
135,000
(2535000-2400000)
total variance in % (135000/2400000)
5.63
volume variance = flexible amount - static amount
200,000
(2600000-2400000)
Volumn variance in % (200000/2400000)
8.33
Dollar management variance =Actual budget amount - Flexible budget amount
- 65,000
(2535000 - 2600000)
% Management variance
- 2.71
(-65000/2400000)
salary expense varinace
total variance in dollars = actual amount - static amount
165,000
(1365000 - 1200000)
total variance in % (165000/1200000)
13.75
volume variance = flexible amount - static amount
100,000
(1300000-1200000)
Volumn variance in % (100000/1200000)
8.33
Dollar management variance =Actual budget amount - Flexible budget amount
65,000
(1365000-1300000)
% Management variance
5.42
(65000/1200000)
Non salary expense
total variance in dollars = actual amount - static amount
- 15,000
(585000 - 600000)
total variance in % (-15000/600000)
- 2.50
volume variance = flexible amount - static amount
50,000
(650000-600000)
Volumn variance in % (50000/600000)
8.33
Dollar management variance =Actual budget amount - Flexible budget amount
- 65,000
(585000-650000)
% Management variance
- 10.83
(-65000/600000)
C. The Variance of 135000 is favaourable as actual result is better than as budgeted.
A. Calculation of flexible budget
Patient Revenue (1300 x 2000)
2,600,000
Salary Expense (1300 x 1000)
1,300,000
Non-Salary Expense (1300 x 500)
650,000
Profit (2600000-1300000-650000)
650,000
B. Variances :
revenue variance
total variance in dollars = actual amount - static amount
135,000
(2535000-2400000)
total variance in % (135000/2400000)
5.63
volume variance = flexible amount - static amount
200,000
(2600000-2400000)
Volumn variance in % (200000/2400000)
8.33
Dollar management variance =Actual budget amount - Flexible budget amount
- 65,000
(2535000 - 2600000)
% Management variance
- 2.71
(-65000/2400000)
salary expense varinace
total variance in dollars = actual amount - static amount
165,000
(1365000 - 1200000)
total variance in % (165000/1200000)
13.75
volume variance = flexible amount - static amount
100,000
(1300000-1200000)
Volumn variance in % (100000/1200000)
8.33
Dollar management variance =Actual budget amount - Flexible budget amount
65,000
(1365000-1300000)
% Management variance
5.42
(65000/1200000)
Non salary expense
total variance in dollars = actual amount - static amount
- 15,000
(585000 - 600000)
total variance in % (-15000/600000)
- 2.50
volume variance = flexible amount - static amount
50,000
(650000-600000)
Volumn variance in % (50000/600000)
8.33
Dollar management variance =Actual budget amount - Flexible budget amount
- 65,000
(585000-650000)
% Management variance
- 10.83
(-65000/600000)
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