8.3. Instlll results reported below Carroll Clinic: New 2015 Results 34,000 visi
ID: 2553372 • Letter: 8
Question
8.3. Instlll results reported below Carroll Clinic: New 2015 Results 34,000 visits 30,000 members I Volume: A. FFS B. Capitated lives Number of 360,000 member-months Actual utilization per 0.12 member-month Number of visits Total actual visits 43,200 visits 77,200 visits C. 7 II. Revenues s 28 per visit A. FFS x 34,000 actual visits $ 952,000 $2.75 360,000 $ 990,000 $1,942,000 B. Capitated lives PMPM actual mermber-months C. Total actual revenu esS III. Costs: A. Variable Costs: Labor $1,242,000 (46,0 126,000 (90,000 unis at $1.40/ per visit S 17.72 (S1,368,0007720 Supplies Total variable costs $1,368,000 Variable cost B. Fixed Costs: Overhead, plant, and equipment 525,000 C. Total actual costs $1893,000 IV. Profit and Loss Statement: Revenues: FFS Capitated s 952,000 990,000 $1,975,000 TotalExplanation / Answer
a) Construct Carroll’s flexible budget for 2015
Particulars
Amount $
Realized Volume;
FFS Visits
34,000
Capitated Visits (30,000*12*.12)
43,200
Total
77,200
Revenues
FFS Visits (34000*25)
850,000
Capitated Visits (30,000*12*3)
1,080,000
Total
1,930,000
Variable Cost
FFS Visits (34000*15)
510,000
Capitated Visits (43,200*15)
648,000
Total
1,158,000
Fixed Cost
500,000
Total Cost
1,658,000
Profit (1930000 -1658000)
272,000
Note;
Although the number of enrollees is the same as in the Static Budget , the number of Capitated fees fell over by 10,000 because the utilization fell from a projected .15 per member month to .12 per member month.
b) What are the profit variance, revenue variance, and cost variance?
Particulars
Static Budget
Flexible Budget
Actual Budget
Assumptions
FFS Visits
36,000
34,000
34,000
Capitated Visits
54,000
43,200
43,200
Total
90,000
77,200
77,200
Revenues
FFS Visits
900,000
850,000
952,000
Capitated Visits
1,080,000
1,080,000
990,000
Total
1,980,000
1,930,000
1,942,000
Variable Cost
FFS Visits
540,000
510,000
602,487
Capitated Visits
810,000
648,000
765,513
Total
1,350,000
1,158,000
1,368,000
Fixed Cost
500,000
500,000
525,000
Total Cost
1,850,000
1,658,000
1,893,000
Profit
130,000
272,000
49,000
Profit Variance
= Actual profit – Static profit
= $49,000 - $ 130,000
= -$81,000
Revenue Variance
= Actual revenue – Static revenue
= $1,942,000 - $ 1,980,000
= -$38,000
Cost Variance
= Static Cost – Actual Cost
= $1,850,000 - $ 1,893,000
= -$43,000
C) Consider the revenue variance. What is the component volume variance? The price variance?
Revenue Variance
= Actual revenue – Static revenue
= $1,942,000 - $ 1,980,000
= -$38,000
Volume Variance
= Flexible revenue – Static revenue
= $1,930,000 - $ 1,980,000
= -$50,000
Price Variance
= Actual revenue – Flexible revenue
= $1,942,000 - $ 1,930,000
= $12,000
d) Break down the cost variance into volume and management components.
Cost Variance
= Static Cost – Actual Cost
= $1,850,000 - $ 1,893,000
= -$43,000
Volume Variance
= Static Cost – Flexible Cost
= $1,850,000 - $ 1,658,000
= $192,000
Management Variance
= Flexible Cost – Actual Cost
= $1,658,000 - $ 1,893,000
= -$235,000
e) Break down the management variance into labor, supplies, and fixed cost variances.
Management Variance
= Flexible Cost – Actual Cost
= $1,658,000 - $ 1,893,000
= -$235,000
Labour Variance
= Flexible labour Cost – Actual labour Cost
= (77,200 visits * .5333 per hour visit $25) - $1,242,000
= $1,029,333 - $ 1,242,000 =-$212,667
Supplies Variance
= Flexible Supplies Cost – Actual Supplies Cost
= (77,200 visits * 1.111 units per visit $1.50) - $126,000
= $128,667 - $ 126,000 =$2,667
Fixed Cost Variance
= Flexible Fixed Cost – Actual Fixed Cost
= $500,000- $525,000
=-$25,000
f) Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter.
Labour Variance breakdown
= Flexible labour Cost – Actual labour Cost
= (77,200 visits * .5333 per hour visit $25) - $1,242,000
= $1,029,333 - $ 1,242,000 =-$212,667
Labour rate variance
= (Static rate – Actual rate) *Actual Labour Hrs.
= ($25 -$27) * 46,000
= - $92,000
Labour Efficiency Variance
= (Flexible Hrs. –Actual Hrs.) * Static rate
= (41,173 – 46,000) * $25 = -$120,667
Supplies Variance Breakdown
= Flexible Supplies Cost – Actual Supplies Cost
= (77,200 visits * 1.111 units per visit $1.50) - $126,000
= $128,667 - $ 126,000 =$2,667
Supplies price Variance
= (Static price – Actual price) *Actual units
= ($1.50 -$1.40) * 90,000
= $9,000
Supplies Usage Variance
= (Flexible Units –Actual Units) * Static Price
= (85,778 – 90,000) * $1.50 = -$6,333
All these Variances shows that the labour cost was over budgeted and supplies cost variance was under budgeted and fixed cost was over budgeted. Therefore the management has to control the costs that were over budgeted.
Particulars
Amount $
Realized Volume;
FFS Visits
34,000
Capitated Visits (30,000*12*.12)
43,200
Total
77,200
Revenues
FFS Visits (34000*25)
850,000
Capitated Visits (30,000*12*3)
1,080,000
Total
1,930,000
Variable Cost
FFS Visits (34000*15)
510,000
Capitated Visits (43,200*15)
648,000
Total
1,158,000
Fixed Cost
500,000
Total Cost
1,658,000
Profit (1930000 -1658000)
272,000
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