Problems 8.2.(pag 279) Here are the 2011 revenues for the Wendover Group Practic

Question

Problems 8.2.(pag 279)

Here are the 2011 revenues for the Wendover Group Practice Association for four different budgets (in thousands of dollars):

Static Budget $425

Flexible (Enrollment/Utilization) Budget $200

Flexible (Enrollment) Budget $180

Actual Results $300

a.What does the budget data tell you about the nature of Wendover’s patients: Are they capitated or fee-for-service? (Hint: See the note to Exhibit 8.7.) •

b.Calculate and interpret the following variances:

o Revenue variance

o Volume variance

o Price variance

o Enrollment variance

o Utilization variance

Explanation / Answer

a) Wendover's patients are free for service.

b) Revenue variance = Actual revenues - Static revenues

                             = $300000 - $425000 = -$125000

Volume variance = Flexible revenues - Static revenues

                        = $200000 - $425000 = -$225000

Price variance = Actual revenues - Flexible revenues

                     = $300000 - $200000 = $100000

Enrollment variance = Flexible (enrollment) revenues - Static revenues

                             = $180000 - $425000 = -$245000

Utilization variance = Flexible (utilization) revenues - Static revenues

                            = $20000 - $425000 = -$405000

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