table that calculates total actual cost, total standard cost (flexible budget cost), and the total cost variance for each of the following costs: Physician Care, Nursing Care, Medical Supplies, and Laboratory.Note - for medical supplies and laboratory tests, assume purchases = usages
Maria Delgado, the Director of Finance of El Conejo Family Planning Clinic, recently had re- ceived a memorandum from the Chairman of the Finance Committee of the Clinic's Board of Trus- tees. The memorandum also had been sent to all department heads, and had expressed concern that the results of the year's operations were considerably worse than budgeted. One reason for this problem was that third parties had lowered their rate for one of the Clinic's most significant visit types, but there appeared to be some other explanations as well. Ms. Delgado had been asked to analyze the reasons for the poor performance, meet with the relevant department heads, and make a presentation at the next board meeting concerning the Clinic's performance. In reviewing the budgeted and actual results, Ms. Delgado discovered that almost all of the Clinic's variation from its budget could be attributed to four visit types and four services. For rea- sons of simplicity, she decided to base her presentation on these only. Exhibit I contains the original budget for these four visit types: IUD, first visit; oral contracep live. first visit: special follow-up visits (when problems existed with the contraceptive or contracep tive method); and routine follow-up. It also shows the budgeted variable expenses per visit for the four services: physician care, nursing care, medical supplies, and laboratory tests. As Exhibit I indicates, the Clinic was paid on a per-visit basis. Its anticipated revenue for each visit type is shown in Exhibit 1, as is the anticipated utilization of services and the variable expense per unit for each service for each visit type. Using these estimates, the total variable expense per visit for each visit type was calculated. The revenue and total variable expense per visit were then multiplied by the anticipated number of visits to give total revenue and total variable expenses by visit The latter was deducted from total revenue to give the contribution to fixed expenses from each visit type. The fixed expenses were then deducted from the total contribution to give a total budgeted surplus of $85,000 for the accounting period. Ms. Delgado asked her staff assistant, Asher Hawkins, to use the actual data for the period. shown in Exhibit 2, as the basis for a report on results for the year. This report was to contain a complete breakdown of the reasons why the Clinic's actual surplus diverged from the budgeted one. The report would be submitted to the Clinic's chief executive officer, and would be used by Ms. Delgado for her presentation to the Board of Trustees. Mr. Hawkins began by using the data from Exhibit 2 to compute the actual financial results for the period (Exhibit 3), which showed that, instead of earning a surplus, the Clinic actually had in- curred a deficit of $218,300. Then, reasoning that the Clinic had essentially no control over the number or type of visits seen, he also prepared a flexible budget (Exhibit 4), which showed that $750 of the difference was due exclusively to the change in the number of visits seen in the Clinic. Using similar reasoning, he prepared an analysis of the variance due to the changes in the third- party reimbursement rates (shown at the bottom of Exhibit 4), which showed that $17,000 of the difference was a result of these rate changes. Having analyzed and explained only $17,750 of the $303,300 total difference between budg- eted and actual performance, Mr. Hawkins met with Ms. Delgado to show her the results of his work. Ms. Delgado explained to Mr. Hawkins that he needed to look into matters such as physi- cian and nursing productivity and wage rates, medical supply costs and laboratory costs. She asked Mr. Hawkins to assess these other reasons why actual results might have diverged from the budget, and to prepare a variance analysis that would explain each of them.EL CONE,JO FAMILY PLANNING CLINIC Exhibit 1 Original Budget IUD Overall Budget Oral Cone Special Ist Visit Routine Number of visits Ist Visit Follow-Up Total 3,000 Follow-Up Price per visit 2,000 1.000 500 6.500 $200.00 $100.00 Total revenue 5600 000 $125.00 $40.00 $200.000 $125,000 $201000 5945,000 Variable expenses per visit $165.00 $75.00 Total variable expenses $495,000 $110.00 $150,000 $10.00 Contribution $1 10.000 $5,000 $105,000 550,000 Total fixed expenses $15,000 760.000 $15,000 $185 000 Surplus 100.000 585,000 Variable expense detail: Physician care Average #minutes per visit 30 10 Average wage per minute 15 $1.00 Total expense per visit $1.00 $30.00 $1.00 $1.00 Nursing care $10.00 $15.00 $5.00 Average #minutes per visit 30 20 Average wage per minute 30 10 $0.50 50.50 Total expense per visit $0.50 50.50 Medical Supplies $15.00 $10.00 $15.00 $5.00 Average # units per visit Average expense per unit $25.00 $25.00 2 $25.00 Total expense per visit $25.00 Laboratory $75.00 $25.00 $50.00 $0.00 Average # tests per visit Average expense per test 3 2 Total expense per visit $15.00 $15,00 $15.00 Total average variable $45.00 $15.00 $30.00 $30,00 $0.00 expense per visit $165.00 $75.00 $110.00 $10.00 Exhibit 2. Actual Results IUD Overall Results Oral Cone Special Actual number of visits Ist Visit Ist Visit 2,750 Follow-Up 2,200 Follow-Up Total Actual price per visit $200.00 1,000 600 Total fixed expenses $90.00 6.350 $130,00 $40.00 Variable expense detail: 100.000 Physician care Average #minutes per visit 25 Average wage per minute 5 20 10 $1.20 $1.20 Nursing care $1.20 $1.20 Average #minutes per visit 40 30 25 Average wage per minute Medical Supplies $0.60 50.60 50.60 $0.60 Average / units per visit Average expense per unit $2100 $21.00 2 2 Laboratory $21.00 $21.00 Average # tests per visit 5 Average expense per test $16.00 3. 5 $16.00 $16.00 $16.00EL CONEJO FAMILY PLANNING CLINIC Exhibit 3. Actual Results with Calculations IUD Oral Cone Special Overall Results 1st Visit Ist Visit Follow-Up Follow-Up Total Actual number of visits 2,750 2,200 1.000 500 6,550 Actual price per visit $200.00 $90.00 $130.00 $40.00 Total revenue $550.000 $198,000 $130.000 $24.000 $902,000 Actual variable expenses per visit $218.00 $114.00 $161.00 $15.00 Total variable expenses $599.500 $250,800 $161,000 $9.000 1,020,300 Contribution (549,500) ($52.800) ($31,000) $15,000 ($1 18,300 Total fixed expenses 100.000 Surplus Variable expense detail: ($218 300) Physician care Average #minutes per visit 25 5 20 10 Average wage per minute $1.20 $1.20 $1.20 $1.20 Total expense per visit $30.00 $6.00 $24.00 $12.00 Nursing care Average #minutes per visit 40 30 25 5 Average wage per minute 50.60 $0.60 $0.60 50.60 Total expense per visit $24.00 $18.00 $3.00 Medical Supplies $15.00 Average # units per visit 2 2 Average expense per unit $21.00 $21.00 $21.00 $21.00 Total expense per visit $84.00 $42.00 $42.00 $0.00 Laboratory Average # tests per visit Average expense per test $1 6.00 $16.00 $16.00 $16.00 Total expense per visit $80.00 $48.00 $80.00 $0.00 Total average variable expense per visit $218.00 $114.00 $161.00 $15.00 Exhibit 4. Flexible Budget and Related Variances TUD Oral Conc Special Overall Budget Ist Visit 1st Visit Follow-Up Follow-Up Total Actual number of visits 2,750 2,200 1,000 600 6,550 Budgeted price per visit $20 0.00 $100.00 $125.00 $40.00 Total revenue $550,000 $220,000 $125,000 $24.000 $919,000 Budgeted variable expenses per visit $165.00 $75.00 $110.00 $10.00 Total variable expenses $453.750 $165.000 $110,000 $6.000 734.750 Contribution $96 .250 $55.100 $15.000 $18.000 $184.250 Total fixed expenses 100.000 Surplus $84.250 Revenue Volume Variance Actual-Budgeted visits -250 200 100 Budgeted price per visit $200.00 $100.00 $125.00 $40.00 Variance ($50000) $20,000 $4.000 Expense Volume Variance ($26.000) Budgeted-Actual visits 250 -200 -100 Budgeted expense per visit $165.00 $75.00 $1 10.00 $10.00 Variance $41.250 Contribution Margin Variance ($15,000) ($1.000) $25,250 Revenue Volume Variance + Expense Volume Variance (58.750) $5,000 $3.000 Revenue Price Variances ($750) Actual-Budgeted price per visit SO.00 ($10.00) $5,00 50.00 Actual number visits 2,750 2.200 1,000 600 Revenue price variance ($22,000) $5000 SO ($17,000)
