8.4 MHA

Refer to Carroll Clinic's 2011 operating budget contained in Exhibit 8.3, Instead of the actual results reported in Exhibit 8.4, assume the results reported below:

Carroll Clinic: New 2011 Results

/. Volume:

A. FFS34,000 visits

B.Capitated lives30,000 members

Number of member-months360,000

Actual utilization per

member-month0.12

Number of visits43,200 visits

C.Total actual visits77,200 visits

II. Revenues:

A.FFS$28 per visit

X 34,000 actual visits $ 952,000

B.Capitated lives$2.75 PMPM

X 360,000 actual member-months $ 990,000

C.Total actual revenues$1,942,000

III. Costs:

A. Variable Costs:

Labor$1,242,000 (46,000 hours at $27/hour)

Supplies126,000 (90,000 units at $1.40/unit)

Total variable costs$17.72 ($1,368,000 / 77,200)

B. Fixed Costs

Overhead, plant,

and equipment$525,000

C. Total actual costs$1,893,000

IV. Profit & Loss Statement:

Revenues:

FFS$952,000

Capitated$990,000

Total$1,942,000

Costs:

Variable:

FFS$602,487

Capitated765,513

Total$1,368,000

Contribution Margin$574,000

Fixed Costs525,000

Actual profit$49,000

a.Construct Carrolls flexible budget for 2011.

b.What are the profit variance, revenue variance, and cost variance?

c.Consider the revenue variance. What is the component volume variance? The price variance?

d.Break down the cost variance into volume and management components.

e.Break down the management variance into labor, supplies, and fixed cost variances.

f.Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter.