Consider the following 2008 data for Newark General Hospitals (in millions of do

Question

Consider the following 2008 data for Newark General Hospitals (in millions of dollars)________________ __________Simple Budget____________Flexible Budget____________Actual Budget__________________ Revenue______$4.7$___________________4.8_______________________$4.5_____________________ Cost___________4.1____________________4.1 _______________________4.2_____________________ Profit__________0.6____________________0.7_______________________ 0.3_________________________________ ___________________________________________________________________________________________-1Canculate and interpret the twoprofit variances___2 Calculate and interpret the two revenue variances___3Calculate and interpret the two cost variances___4how are the variances related financialy?

Explanation / Answer

Calculate and interpret the volume and price variances on the revenue side. * Volume variance = Flexible Revenues - Static Revenues = $ 4,800,000.00 - $ 4,700,000.00 $ 100,000.00 * Price Variance = Actual Revenues - Flexible Revenues = $ 4,500,000.00 - $ 4,800,000.00 $ (300,000.00) Interpretation For volume and price variances on the revenue side: Newark General Hospital Manager that a higher than expected volume should have resulted is being $100,000 greater than expected in 2007. However, this potential revenue increase was partially offset by the fact that realized prices (reimbursement) were less than expected. This resulted in a higher volume at lower prices is realized revenue that were ($300,000) lower than forecasted. Calculate and interpret the volume and management variances on the cost side. * Volume variance = Static Costs - Flexible Costs = $ 4,100,000.00 - $ 4,100,000.00

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