Finance Chapter 8

Topics: Variance, Cost, Price Pages: 4 (675 words) Published: September 18, 2013
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 increase...
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