Planning and Budgeting 185 Determine the variances for each line of the P&L statement, both in dollar terms and in percentage terms. What do the results in Part b tell Brandon's managers about the center's operations for the quarter? Refer to Carroll Clinic's 2012 operating budget, contained in Exhibit 6.2. Instead of the actual results reported in Exhibit 6.3, assume the results reported below: Carroll Clinic: New 2012 Results Volume (Number of Visits) Payer A 11,000 Payer B 12,000 Total 23,000 Reimbursement (per Visit) Payer A $ 95 Payer B $ 95 Costs Variable Costs: Supplies $ 350,000 Fixed Costs: Labor $1,000,000 Overhead 500,000 Total $1,500,000 Forecasted P&L Statement Revenues: Payer A $1,045,000 Payer B 1,140,000 Total revenues $2,185,000 Variable costs $ 350,000 Fixed costs 1,500,000 Total $1,850,000 Profit $ 335,000 Fundamentals of Healthcare Finance What are the profit, revenue, and cost variances based on the simple (Exhibit 6.2) budget? Construct Carroll's flexible budget for 2012. What are the profit, revenue, and cost variances based on the flexible budget? Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter. Again refer to Carroll Clinic's 2012 operating budget, contained in Exhibit 6.2. Instead of the actual results reported in Exhibit 6.3 or listed in Problem 6.3, assume these results: Carroll Clinic: New 2012 Results Volume (Number of Visits) Payer A 8,500 Payer B 11,000 Total 19,500 Reimbursement (Per Visit) Payer A $ 90 Payer B $ 80 Costs Variable Costs: Supplies $ 320,000 Fixed Costs: Labor $1,050,000 Overhead 550,000 Total $1,600,000 Forecasted P&L Statement Revenues: Payer A $ 765,000 Payer B 880,000 Total revenues $1,645,000 Variable costs $ 320,000 Fixed costs 1,600,000 Total $1,920,000 Profit ($ 275,000) Planning and Budgeting 173 Volume (Number of Visits) EXHIBIT Carroll Clinic: 2012 Operating Budget Operating Budget 6.2 Payer A 9,000 Payer B 12,000 Total 21,000 Reimbursement (Per Visit) Payer A $ 100 Payer B $ 90 Costs Variable Costs: Supplies $ 315,000 Fixed Costs: Labor $1,035,000 Overhead 500,000 Total $1,535,000 Forecasted P&L Statement Revenues: Payer A $ 900,000 Payer B 1,080,000 Total revenues $1,980,000 Variable costs $ 315,000 Fixed costs 1,535,000 Total costs $1,850,000 Profit $ 130,000 Part IV contains the budgeted (forecasted) 2012 P&L statement, the heart of the operating budget. Total revenues for the clinic are forecasted to be ($100 times Number of Payer A visits) + ($90 times Number of Payer B visits) = ($100 times 9,000) + ($90 times 12,000) = $900,000 + $1,080,000 = $1,980,000. If the actual number of visits is more or less than 21,000 in 2012, the resulting revenues will be different from the $1,980,000 forecast. The difference between the projected revenues of $1,980,000 and projected total costs of $315,000 + $1,535,000 = $1,850,000 produces a budgeted profit of $130,000. Planning and Budgeting 175 Exhibit 6.3 Carroll Clinic: 2012 Simple Budget Variance Analysis As explained earlier, variance analysis involves comparing two amounts, with the variance being the difference between the values. For example, if at the beginning of the year, a hospital expected to make a profit of $2 million but actual profit was $2.2 million, the variance would be a positive $0.2 million, or $200,000. The budgeted value, in this case $2 million of profits, is often called the standard, because that is the profit goal of the hospital (the standard to be reached) as expressed in Standard In variance analysis, the budgeted (expected) value established at the beginning of the budget period. Planning and Budgeting 185 Determine the variances for each line of the P&L statement, both in dollar terms and in percentage terms. What do the results in Part b tell Brandon's managers about the center's operations for the quarter? Refer to Carroll Clinic's 2012 operating budget, contained in Exhibit 6.2. Instead of the actual results reported in Exhibit 6.3, assume the results reported below: Carroll Clinic: New 2012 Results Volume (Number of Visits) Payer A 11,000 Payer B 12,000 Total 23,000 Reimbursement (per Visit) Payer A $ 95 Payer B $ 95 Costs Variable Costs: Supplies $ 350,000 Fixed Costs: Labor $1,000,000 Overhead 500,000 Total $1,500,000 Forecasted P&L Statement Revenues: Payer A $1,045,000 Payer B 1,140,000 Total revenues $2,185,000 Variable costs $ 350,000 Fixed costs 1,500,000 Total $1,850,000 Profit $ 335,000 Fundamentals of Healthcare Finance What are the profit, revenue, and cost variances based on the simple (Exhibit 6.2) budget? Construct Carroll's flexible budget for 2012. What are the profit, revenue, and cost variances based on the flexible budget? Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter. Again refer to Carroll Clinic's 2012 operating budget, contained in Exhibit 6.2. Instead of the actual results reported in Exhibit 6.3 or listed in Problem 6.3, assume these results: Carroll Clinic: New 2012 Results Volume (Number of Visits) Payer A 8,500 Payer B 11,000 Total 19,500 Reimbursement (Per Visit) Payer A $ 90 Payer B $ 80 Costs Variable Costs: Supplies $ 320,000 Fixed Costs: Labor $1,050,000 Overhead 550,000 Total $1,600,000 Forecasted P&L Statement Revenues: Payer A $ 765,000 Payer B 880,000 Total revenues $1,645,000 Variable costs $ 320,000 Fixed costs 1,600,000 Total $1,920,000 Profit ($ 275,000) Planning and Budgeting 173 Volume (Number of Visits) EXHIBIT Carroll Clinic: 2012 Operating Budget Operating Budget 6.2 Payer A 9,000 Payer B 12,000 Total 21,000 Reimbursement (Per Visit) Payer A $ 100 Payer B $ 90 Costs Variable Costs: Supplies $ 315,000 Fixed Costs: Labor $1,035,000 Overhead 500,000 Total $1,535,000 Forecasted P&L Statement Revenues: Payer A $ 900,000 Payer B 1,080,000 Total revenues $1,980,000 Variable costs $ 315,000 Fixed costs 1,535,000 Total costs $1,850,000 Profit $ 130,000 Part IV contains the budgeted (forecasted) 2012 P&L statement, the heart of the operating budget. Total revenues for the clinic are forecasted to be ($100 times Number of Payer A visits) + ($90 times Number of Payer B visits) = ($100 times 9,000) + ($90 times 12,000) = $900,000 + $1,080,000 = $1,980,000. If the actual number of visits is more or less than 21,000 in 2012, the resulting revenues will be different from the $1,980,000 forecast. The difference between the projected revenues of $1,980,000 and projected total costs of $315,000 + $1,535,000 = $1,850,000 produces a budgeted profit of $130,000. Planning and Budgeting 175 Exhibit 6.3 Carroll Clinic: 2012 Simple Budget Variance Analysis As explained earlier, variance analysis involves comparing two amounts, with the variance being the difference between the values. For example, if at the beginning of the year, a hospital expected to make a profit of $2 million but actual profit was $2.2 million, the variance would be a positive $0.2 million, or $200,000. The budgeted value, in this case $2 million of profits, is often called the standard, because that is the profit goal of the hospital (the standard to be reached) as expressed in Standard In variance analysis, the budgeted (expected) value established at the beginning of the budget period