In: Accounting
1. Schultz Clinic uses patient-visits as its measure of activity. The clinic bases its budgets on the following information: Revenue should be $40 per patient-visit. Personnel expenses should be $30,000 per month plus $11 per patient-visit. Medical supplies should be $1,000 per month plus $8 per patient-visit. Occupancy expenses should be $10,000 per month plus $1 per patient-visit. Administrative expenses should be $6,000 per month plus $1 per patient-visit.
The clinic reported the following actual results for February:
Patient-visits |
3,000 |
Revenue |
$122,000 |
Expenses |
|
Personnel expense |
66,000 |
Medical supplies |
26,000 |
Occupancy expense |
15,000 |
Administrative expense |
2,000 |
Prepare a report showing the clinic's revenue and spending variances for February. Label each variance as favorable (F) or unfavorable (U).
Ans. | SCHULTZ CLINIC | |||||
Actual Results | Revenue & Spending variance | Flexible Budget | ||||
Patient visits | 3,000 | 3,000 | ||||
Revenue | $122,000 | $2,000 | F | $120,000 | ||
Less: Expenses: | ||||||
Personnel expense | $66,000 | $3,000 | U | 63000 | ||
Medical supplies | $26,000 | $1,000 | U | 25000 | ||
Occupancy expense | $15,000 | $2,000 | U | 13000 | ||
Administrative expense | $2,000 | $7,000 | F | 9000 | ||
Total expenses | $109,000 | $1,000 | F | $110,000 | ||
Net operating income | $13,000 | $3,000 | F | $10,000 | ||
*Calculations for Flexible budget: | ||||||
Revenue | 3,000 * $40 | |||||
Less: Expenses: | ||||||
Personnel expense | $30,000 + ($11 * 3,000) | |||||
Medical supplies | $1,000 + ($8 * 3,000) | |||||
Occupancy expense | $10,000 + ($1 * 3,000) | |||||
Administrative expense | $6,000 + ($1 * 3,000) | |||||
*Flexible budget is prepared on the basis of actual Number of units. | ||||||
*Revenue and spending variance = Actual results - Flexible budget. | ||||||
*Increase in revenue or net income and decrease in cost from flexible to actual = Favorable. | ||||||
*Decrease in revenue or net income and increase in cost from flexible to actual = Unfavorable. | ||||||