Consider the Following 2011 Data for Newark General Hospital (in million dollars
ID: 2757099 • Letter: C
Question
Consider the Following 2011 Data for Newark General Hospital (in million dollars)
A. Calculate and interpret the profit variance.
B. Calculate and interpret the revenue variance
C. Calculate and interpret the cost variance.
D. Calculate and interpret the volume and price variances on the reveune side.
E. Calculate and interpret the volume and management variances on the cost side.
F. How are the variances calculate above related?
Static Budget Flexible Budget Actual Results Revenues $4.7 $4.8 $4.5 Cost 4.1 4.1 4.2 Profits 0.6 0.7 0.3Explanation / Answer
A. Calculate and interpret the profit variance.
Profit Variance : Actual profits - budgeted profits = 0.3 - 0.6 = (-) 0.3 adverse
The profit has been much less than the budgeted both at static and flexible budget level. This is due to lower revenue or / and higher cost of operations.
B. Calculate and interpret the revenue variance.
Revenue Variance = Actual revenues - budgeted revenues = 4.5 - 4.8 = (-) 0.3 adverse
The revenue of the hospital has been on the negative side than the budgeted as could be due to competition or low patient turnups.
C. Calculate and interpret the cost variance.
Cost Variance = Actual costs - budgeted costs = 4.2 - 4.1 = (-) 0.10 adverse
The cost incurred by the hospital on its operations has been on the higher side leading to a negative variance. This could be due to higher costs of utilities and medical items or higher level of wastage.
D. Calculate and interpret the volume and price variances on the reveune side.
Volume and Price Variances = Actual revenues - budgeted revenues = 4.5 - 4.8 = (-) 0.3 adverse
The lower revenue could be due to lower level of volume of patients or reduction in the per patient fees due to government pressure or competition.
E. Calculate and interpret the volume and management variances on the cost side.
Volume and Management Variances = Actual costs - budgeted costs = 4.2 - 4.1 = (-) 0.10 adverse
The volume of the utilities or medicines have be used on higher side due to more wastage or lack of control on the inventory system. There seems to be the lackness on the part of the management in handling the operations of the hospital.
F. The variances calculated above are related to each other as Due to lower revenues and Higher costs incurrance there is a result in the lower profit. Management does not seem to be in complete control of the operations of the hospital.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.