Question

Chelsea Clinic’s static budget, flexible budget and actual expense information for 2020 is listed below.

Assumptions:		Static Budget	Flexible Budget	Actual Results
	Blue Cross Visits	36,000	40,000	40,000
	Highmark Visits	54,000	60,000	60,000
	Total Visits	90,000	100,000	100,000
Revenues
	Blue Cross	$         900,000	$        1,000,000	$      1,120,000
	Highmark	$      1,080,000	$        1,200,000	$      1,080,000
	Total	$      1,980,000	$        2,200,000	$      2,200,000
Costs
Variable:
	Labor	$      1,200,000	$        1,333,333	$      1,400,000
	Supplies	$         150,000	$           166,667	$         225,000
	Total Variable	$      1,350,000	$        1,500,000	$      1,625,000
	Fixed Costs	$         500,000	$           500,000	$         500,000
	Total Costs	$      1,850,000	$        2,000,000	$      2,125,000
Profit		$         130,000	$           200,000	$           75,000

3a. Based on this information, calculate revenue variance.

Choice: $220,000

Choice: $318,000

Choice: $25,000

Choice: ($55,000)

3b. Based on this information, calculate cost variance.

Choice: $95,000

Choice: $145,000

Choice: ($275,000)

Choice: ($100,000)

Answer 1

Solution 3a:

Revenue variance = Actual sales revenue - Budgeted sales revenue = $2,200,000 - $1,980,000 = $220,000

Hence first option is correct.

Solution 3b:

Cost variance = Budgeted total cost - Actual total cost = $1,850,000 - $2,125,000 = ($275,000)

Hence third option is correct.