Question

Here are the budgets of Brandon Surgery Center for the most recent historical quarter (thousands of dollars?):

                                               Static                     Flexible                     Actual

Number of surgeries                1,200                       1,300                      1,300

Patient Revnue                        $2400                      $2600                      $2535

Salary Expense                        1200                        1300                          1365

non-salary expense                    600                         650                            585

profit                                           $600                       $650                            $585

The center assumes that all revenues and costs are variable and hence tied directly to patient volume.

A. Explain how each amount in the flexible budget was calculated (Hint: Examine the static budget to determine the relationship of each budget line to volume.)

B. Determine the variances for each line of the profit and loss statement, both in dollar terms and in percenage terms. (Hint: Each line has a total variance, a volume variance, and a price varianc (fro revenues) and mananagment variance (for expenses)

C. What do the Part b results tell Brandons managers about the surgery centers operations for the quarter?

Answer 1

A. Since all revenues and costs are variable, the per surgery revenue or cost is calculated based on the static budget by dividing the revenue or cost by the number of surgeries which is 1200. This per surgery rate is then multiplied by the number of surgeries for flexible budget i.e. 1300 to arrive at each amount in the flexible budget.

	Static Budget		Flexible Budget
Number of surgeries	1200		1300
	Total	Per unit
Patient revenue	2400	2	2600
Salary expense	1200	1	1300
Non-salary expense	600	0.5	650
Profit	600	0.5	650

B.

	Static Budget	Volume Variance		Flexible Budget	Price/Management Variance		Actual Results	Total Variance
		%	$		%	$		%	$
Patient revenue	2400	8.33F	200F	2600	2.50U	65U	2535	5.63F	135F
Salary expense	1200	8.33U	100U	1300	5.00U	65U	1365	13.67U	165U
Non-salary expense	600	8.33U	50U	650	10.00F	65F	585	2.50F	15F
Profit	600	8.33F	50F	650	10.00U	65U	585	2.50U	15U

C. The Part B results show that though there has been an increase in the number of surgeries, and the patient revenue and non-salary expense have a favorable variance, the overall profit shows an unfavorable variance due to an unfavorable salaries expense variance.