Question

Volume, Risk, and Price Variances Analyze the variances in the following scenario: You are the nursing administrator for a medical group that expects a severe outbreak of the flu this winter. You hire additional staff to treat the patients and administer shots. Your special project budget was for 1,000 hours of part-time nurses’ services at $40 per hour, for a total cost of $40,000. It was expected that these nurses would administer 400 flu shots and treat 1,600 flu patients. The medical group typically charges $50 for a flu shot and $80 for treating a flu patient. Actually, the group had 1,200 patients who received the flu shot and 1,400 who had the flu and received treatment. On average, it was able to collect $55 per flu shot and $70 per flu patient. Compute the volume, mix, and price revenue variances. How did things turn out for the group considering just revenues? How did they turn out from a profit perspective? Use the approach from chapter 8 to solve. Clearly label the calculations of the required variances using Excel. Use formulas to calculate the three variances and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number. Explain the meaning of the variances in a two page Word document.

Answer 1

Volume variance = (Actual units - budgeted units) x Budgeted price per unit

For flu shots :

Actual= 1200 shots

Budgeted = 400 shots

Budgeted price of a flu shot = $50

Volume variance for flu shots = (1200-400) x 50 = 40,000 (F)

For flu patients:

Actual = 1,400

Budgeted = 1,600

Budgeted price per patient = $80

Volume variance = (1,400- 1600) x 80 = 16,000 (A)

Volume variance (total) = 40000 - 16000 = 24000

Price variance: (Actual price per unit - Budgeted price per unit ) x actual units

For flu shots:= (55 - 50 ) x 1,200 = 6,000(F)

For patients = (70 - 80) x 1400 = 14,000(A)

Price variance = 8,000 (A)

Profit

Revenue :

Flu shots = 1200 x 55 = 66000

Patients = 1400 x 70 = 98000

Total revenue = 164,000

Cost = 40,000

Profit = 164,000 - 40,000 = 124,000