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Budget Management Analysis

Esfira Shakhmurova

NUR 571

December 3, 2012

David Karluk

Variance Analysis as defined by Finkler et al., (2007), is “the aspect of budgeting in which actual results are compared with budgeted expectations”(p.310). In variance analysis, if the actual amount is lower than that of the forecast amount than there is a positive variance. However, if the actual amount is higher than that of the forecast amount then the variance budget is showing negative results. The total forecast expenses for Hypothetical Memorial Hospital in 2008 were $443,931 and the actual expenses were $468,558. The difference between the two was ($24,627). The current period forecasted budget was $37,211 and the actual expenses were $42,971. The difference between the two is ($5,760). This results in a negative variance. Expense I: Salaries

The forecasted salary expenses for 2008 were $139,317 and the actual expenses were $143,052. The variance was ($3,735). In 2007, the actual salary expense was $124,925. There was an increase in 2008, but the actual expense was greater than the budgeted amount bringing in a negative variance. The current period salary expenses were budgeted for $11,963 and the actual current period expense is $13,475. The managers were not acting responsibly in figuring out a way to decrease the actual salaries after the first or second month to make sure they stay within the expected budget.

Expense II: Employee Benefits

The   organization forecasted the employee benefits to be $36,464 in 2008. The actual employee benefits in the organization were $34,724.  The variance was $1,740. The current periods benefits were budgeted to be more than actually spent resulting in a positive variance. The organizations employees were provided benefits and made sure they stayed within budget, which Hypothetical Memorial Hospital has successfully maintained.

Expense III: General & Admin Expenses

Hypothetical Memorial Hospital forecasted general and administration expenses in 2008 to be $4,248 and the actual was $3,980, resulting in a positive variance of $268. The current period showed a negative variance by ($9) but each month management has made adjustments to make sure the organization has stayed within budget. In 2007, the organization has spent $4,386 on general and administrative expenses, so the organization’s and management goals were to decrease the amount and they were successful in doing so.

Expense IV: Utilities
The hospital forecasted in 2008 for utility expenses to be $2,810 and the actual expense is $3,003, making it a ($193). Current period usage is showing a $63 loss, so the management needs to figure out a way to economize on the most efficient way to spend money on utilities. In 2007, there was a negative variance in utility expense, hoping that an increase in budget would provide for a better outcome, unfortunately that is not how it turned out in 2008.

Expense V: Contract Personnel

In 2008, the forecasted expense for contracted personnel was $7,457. The actual expense is $15,603 resulting in a very high negative variance. This expense brings the majority of the budget for Hypothetical Memorial Hospital down. In 2007, the actual expense for contracted personnel was $11,375 hoping that in 2008, they would not have to spend more than that. Unfortunately, the management has not figured out a way to provide their services without involving third party agencies.

 

Managing the budget within forecast

Developing a working budget is a hard task for many organizations as managers do not have the necessary skills to develop such a budget which in turn affects the performance of the organization negatively. Organizations should stick to their predicted budgets very closely in order to prevent any negative variances. Unfortunately, no matter how hard an organization will follow the...
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