B. Discuss how each key budget assumption might result in a budget variance, and
ID: 2615121 • Letter: B
Question
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
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
Chelsea Clinic projected the following budget information for 2015: Total FFS Visit Volume 90,000 visits payer mix Blue Cross 40% Highmark 60% Reimbursement rates: Blue Cross $ 25.00 per visit Highmark $ 20.00 per visit Variable costs Resource Inputs: labor 48,000 total hours supplies 100,000 total units Resource Input Prices: labor $ 25.00 per hour supplies $ 1.50 per unit Fixed costs (overhead, plant, and equipment) $ 500,000.00Explanation / Answer
labor cost
Blue Cross 40%
High Mark 60%
48,000
19200 =
28800 =
total hours
19200*25 = 480000
28800*25 = 720000
supplies
Blue Cross 40%
High Mark 60%
100,000
40000 =
60000 =
total units
40000*1.25 = 50000
60000*1.25 = 80000
per hour
per unit
Fixed costs (overhead)
Blue Cross 40%
Highmark 60%
$ 500,000.00
= 500000*40%
= 200000
=500000*60%
= 300000
Now the Profit Through Blue Cross is 170000
and the loss through Highmark is (20000)
so here total profit is 150000
Here the variance which are used to examine results is cost variance
It is a cost budget which show the cost from the business and revenue earned
and the assumption is to take that the fixed overhead are incurred properly in the proportion of sales
Chelsea Clinic projected the following budget information for 2015: Total FFS Visit Volume 90,000 visits payer mix Blue Cross 40% 36000 visits Highmark 60% 54000 visits Reimbursement rates: Blue Cross $ 25.00 per visit = 25*36000 = 900000 Highmark $ 20.00 per visit = 20*54000 = 1080000 Variable costs Resource Inputs:labor cost
Blue Cross 40%
High Mark 60%
48,000
19200 =
28800 =
total hours
19200*25 = 480000
28800*25 = 720000
supplies
Blue Cross 40%
High Mark 60%
100,000
40000 =
60000 =
total units
40000*1.25 = 50000
60000*1.25 = 80000
Resource Input Prices: labor $ 25.00per hour
supplies $ 1.50per unit
Fixed costs (overhead)
Blue Cross 40%
Highmark 60%
$ 500,000.00
= 500000*40%
= 200000
=500000*60%
= 300000
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