Managing with Budget Variances

Ruth was the chief nursing officer of a midsized hospital in a southwestern community. The hospital had experienced a number of very difficult years and had gradually lost market share to some of the newest market entrants. In its latest strategic plan, achieving competitive efficiencies had become a key priority. To accomplish this aim, the hospital would need to cut 10 percent of its costs. Because she managed the largest portion of hospital personnel, she was asked to defend the recent actual results against the budget, specifically for salary and related costs. She received the following data:

	Budgeted	Actual
Adjusted Patient Days	210,000	178,000
Net Revenues	52,000,000	51,285,000
Salary Costs	22,000,000	19,435,000
Other	2,350,000	1,650,000
Total Costs	24,350,000	21,085,000
Contribution Margin	27,650,000	30,200,000

Analyze the data using volume, price, and efficiency variance.

Questions

Did Ruth's hospital achieve its 10 percent reduction in salary costs?

What effects did volume, price, and efficiency have on the outcomes?

What would you present to justify the financial results?