Question

Problem 1

Tallahassee Clinic projected the following budget information for 2018:

Total FFS Visit Volume	90,000 visits
Payer Mix:
Blue Cross	40%
Celtic Insurance Company	60%
Reimbursement Rates:
Blue Cross	$25 per visit
Celtic Insurance Company	$20 per visit
Variable Costs – Resource Inputs:
Labor	48,000 total hours
Supplies	100,000 total units
Variable Costs – Input Prices:
Labor	$25 per hour
Supplies	$1.50 per unit
Fixed Costs (overhead, plant, and equipment)	$500,000

Construct Tallahassee Clinic’s static operating budget for 2018. (See Exhibit 8.3, page 283. Note that there are four components that need to be included: Volume Assumptions, Revenue Assumptions, Cost Assumptions, and the Pro Forma Profit and Loss or P&L projected Statement.)

Revenue Assumptions

Blue Cross Reimbursement                   900,000           (90,000 x 0.4 x 25)

Celtic Insurance Co Reimbursement      1,080,000        (90,000 x 0.6 x 20)

Total Revenue                                      $1,980,000

Cost Assumptions

Variable Expenses        

            Labor                                       1,200,000        (48,000 x 25)

            Supplies                                   150,000           (100,000 x 1.5)

            Total Variable Expense              1,350,000

            Fixed Costs                               500,000

Pro Forma Profit and Loss (P&L) Statement:

Revenue:

FFS 1,980,000

Costs:

Variable Costs 1,350,000

Contribution Margin 630,000

Fixed Costs 500,000

Projected Profit 130,000

Problem 2

Refer to Problem 1 above. Tallahassee Clinic’s actual results for 2018 are shown in the table below:

Total FFS Visit Volume	100,000 visits
Payer Mix:
Blue Cross	40%
Celtic Insurance Company	60%
Reimbursement Rates:
Blue Cross	$28 per visit
Celtic Insurance Company	$18 per visit
Variable Costs – Resource Inputs:
Labor	50,000 total hours
Supplies	150,000 total units
Variable Costs – Input Prices:
Labor	$28 per hour
Supplies	$1.50 per unit
Fixed Costs (overhead, plant, and equipment)	$500,000

a. Construct Tallahassee Clinic’s flexible budget for 2018 and actual operating results for 2018. (Hint: place the three budgets side by side. See Exhibits 8.4 and 8.5).

b. What is the profit variance?

c. Wat is the revenue variance?

d. What is the cost variance?

e. Focus on the revenue side. What is the volume variance?

f. Focus on the revenue side. What is the price variance?

g. Focus on the cost side. What is the volume variance?

h. Focus on the cost side. What is the management variance?

I NEED PROBLEM 2 ANSWERED......SENT PROBLEM 1 FOR REFERENCE, IT ALREADY HAS THE ANSWERS. THANK YOU

Answer 1

a)

	Target	Actual	Variance
FFS Visit Volume	90,000	1,00,000	10,000
Payer Mix
Blue Cross	40%	40%
Celtic Insurance Company	60%	60%
Reimbursement Rates:
Blue Cross	25	28
Celtic Insurance Company	20	18
Variable Costs-Resource Inputs:
Labor	48000	50000
Supplies	100000	150000
Variable Costs-Input Prices:
Labor	25	28
Supplies	1.5	1.2
Fixed costs (Overhead,Plant & Equipment)	5,00,000	5,00,000
Revenue
Blue Cross	9,00,000	11,20,000
Celtic Insurance Co	10,80,000	10,80,000
Total Revenue	19,80,000	22,00,000	2,20,000
Variable Expenses
Labor	12,00,000	14,00,000
Supplies	1,50,000	1,80,000
Total Variable Expense	13,50,000	15,80,000	2,30,000
Contribution Margin	6,30,000	6,20,000
Fixed costs	5,00,000	5,00,000	-
Projected Profit	1,30,000	1,20,000	-10,000

b) Profit Variance is - 10,000

c) Revenue Variance between Actual & Target is 2,20,000

d) Cost Variance is - 2,30,000

e) Revenue Per Volume for targets - 19,80,000/90,000=22 & for Actuals - 22,00,000/1,00,000=22 Since Revenue per volume is same between Actual & Targets - Volume Variance is 2,20,000

f) Revenue per volume remains same between Actuals & Targets- There is no variance

g) On Cost side-  Total Cost excluding Fixed cost is increased by 2,30,000= Variable expenses per volume on target is 15.0 and Variable expenses per volume on Actual is 15.8 . Volume Variance is -150,000 ( 15* (90,000-1,00,000)

h)I assume this Price Variance = -80,000. ((15-15.8)*10,000) - Variable expenses per volume on Targets- Variable expenses per volume on Actuals * Increase on volume