Finance Chapter 8
Problems:
8.1: Data for Newark General Hospital (In Millions of Dollar):
| |Static Budget |Flexible Budget |Actual Result |
|Revenues |4.7 |4.8 |4.5 |
|Costs |4.1 |4.1 |4.2 |
|Profits |0.6 |0.7 |0.3 |
A. Calculate and interpret the profit variance.
Profit Variance = Actual Profit – Static Profit = 0.3 – 0.6 = -0.3 In words Newark General hospital was $300,000 below standard, and made less profit than their expectations.
B. Calculate and interpret the Revenue variance.
Revenue Variance = Actual Revenues – Static Revenues = 4.5 – 4.7 = -0.2 In words Newark General Hospital was $200,000 below standard, and generated less revenues than their expectations.
C. Calculate and interpret the Cost variance.
Cost Variance = Static Costs – Actual Costs = 4.1 – 4.2 = - 0.1 In words Newark General Hospital’s $100,000 cost variance indicates that realized cost was much greater than expected.
D. Calculate and interpret the volume and price variance on the revenue side.
Volume Variance = Flexible Revenues – Static Revenues = 4.8 – 4.7 = 0.1
Price Variance = Actual Revenues – Flexible Revenues = 4.5 – 4.8 = -0.3 These variances tell that higher than expected volume should have resulted in revenues being $100,000 greater than expected. However, this potential revenue
8.1: Data for Newark General Hospital (In Millions of Dollar):
| |Static Budget |Flexible Budget |Actual Result |
|Revenues |4.7 |4.8 |4.5 |
|Costs |4.1 |4.1 |4.2 |
|Profits |0.6 |0.7 |0.3 |
A. Calculate and interpret the profit variance.
Profit Variance = Actual Profit – Static Profit = 0.3 – 0.6 = -0.3 In words Newark General hospital was $300,000 below standard, and made less profit than their expectations.
B. Calculate and interpret the Revenue variance.
Revenue Variance = Actual Revenues – Static Revenues = 4.5 – 4.7 = -0.2 In words Newark General Hospital was $200,000 below standard, and generated less revenues than their expectations.
C. Calculate and interpret the Cost variance.
Cost Variance = Static Costs – Actual Costs = 4.1 – 4.2 = - 0.1 In words Newark General Hospital’s $100,000 cost variance indicates that realized cost was much greater than expected.
D. Calculate and interpret the volume and price variance on the revenue side.
Volume Variance = Flexible Revenues – Static Revenues = 4.8 – 4.7 = 0.1
Price Variance = Actual Revenues – Flexible Revenues = 4.5 – 4.8 = -0.3 These variances tell that higher than expected volume should have resulted in revenues being $100,000 greater than expected. However, this potential revenue