Question

How are the variances related? udgets of Brandon Surgery Center for the most recent historical Following are the budgets of Bra arter (in thousands of dollars): Actual Number of surgeries Patient revenue Salary expense Nonsalary expense Profit Simple 1,200 $2,400 $1,200 $ 600 $ 600 Flexible 1,300 $2,600 $1,300 $ 650 $ 650 1,300 $2,535 $1,365 $ 585 $585 The center assumes that all revenues and costs are variable and hence tied directly to patient volume. a. Explain how each amount in the flexible budget was calculated. (Hint: Exam- ine the simple budget to determine the relationship of each budget line to volume.) b. Determine the variances for each line of the P&L statement, both in dollar terms and in percentage terms. C. What do the results in part b tell Brandon's managers about the center's opera- tions for the quarter?

Answer 1

A C D F G H I 1 a) Total 3 Number of surgeries 4 5 Patient revenue 6 Salary expense 7 Non-salary expense 8 Profit Static Budget Flexible Budget 1200 1300 Per unit 2400 21 2600 1200 1 1300 600 0. 5 650 600 0.51 650 9 10 b Actual Results Static Budget Volume Variance Total Variance 11 12 13 Patient revenue 14 Salary expense 15 Non-salary expense 16 Profit 2400 8.33F 1200 8.330 600 8.33U 600 8.33F 200F 1000 50U 50F Flexible Price/Management Budget Variance % $ 2600 2.500 650 1300 5.000 650 650 10.00F 65F 650 10.000 650 2535 5.63F 1365 13.670 585 2.50F 585 2.500 135F 1650 15F 15U

c) Negative variance represents unfavorable results whereas positive variance represents favorable results.

The overall center has performed better than what was expected.