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

Answer:

a) Flexible Budget is the budget calculated by taking actual quantity but at standard cost.

(Amount in ‘000)

Static

Flexible (Based on actual result at Standard Cost)

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

1) Number of Surgeries --- Master Budget / Static Budget prepared for 1,200 surgeries but the actual data shows 1,300 surgeries were done in the period. Hence Flexible Budget is prepared by taking Actual Result.

2) Patient Revenue --- As per static budget, Revenue Per Surgery = Revenue / No. of surgeries = $2,400,000 / 1,200 = $2,000. Hence on the basis of Actual Result 1,300 surgeries, the Patient Revenue at Standard Budget = 1,300 x $2,000 per surgery = $2,600,000

3) Standard Cost of Salaries Expenses = $1,200,000 / 1,200 = $1,000. Flexible Budget Salary Expenses = 1,300 x $1,000 = $1,300,000

And so on..

b.

Dollars in '000

Static

Flexible (Based on actual result at Standard Cost)

Actual

Variance between flexible budget and actual result (In value)

Variance between flexible budget and actual result (In value)

In Amount

Favorable / Unfavorable

in %

Favorable / Unfavorable

Number of surgeries

1,200

1,300

1,300

Patient revenue

$2,400

$2,600

$2,535

$65

Unfavorable

2.50%

Unfavorable

Salary expense

$1,200

$1,300

$1,365

$65

Unfavorable

5.00%

Unfavorable

Non-salary expense

$600

$650

$585

$65

Favorable / Unfavorable

10.00%

Favorable / Unfavorable

Profit

$600

$650

$585

$65

Unfavorable

10.00%

Unfavorable

c.

Part b shows that

1) the actual performance in terms of Number of Surgeries are improved which was budgeted to 1,200 at the beginning of the period.

2) Actual Patient Revenue was not as per the budgeted.

3) Salary Expenses are increased during the year.

4) Non Salary Expenses are reduced. It shows that the company has done work to reduce the Non Salary Expenses.

5) Profit has been declined what were budgeted.

Overall performance of the company was below the standard because it is not as per the standard.

(Amount in ‘000)

Static

Flexible (Based on actual result at Standard Cost)

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

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.