Question

Chatham Clinic has accumulated the following information regarding its patient visits: Static Budget Actual Results Patient...

Chatham Clinic has accumulated the following information regarding its patient visits:

Static Budget

Actual Results

Patient visits

1,500

1,400

Variable cost per visit

$50

$55

Fixed costs

$100,000

$100,000


I. What is the cost variance for Chatham Clinic?

  $2,000 favorable

  $2,000 unfavorable

  $7,000 favorable

  $7,000 unfavorable

  $5,000 favorable

II. What is the management variance for Chatham Clinic?

  $2,000 favorable

  $2,000 unfavorable

  $7,000 favorable

  $7,000 unfavorable

  $5,000 favorable

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Answer #1

Cost variance is the difference between cost actually incurred and the budgeted figures. When actual cost incurred is greater than the budgeted figure, it is unfavorable. Else, it is favorable.

Total variable cost is calculated as (total patient visits * variable cost per visit). So, the budgeted figure is $75,000 (1500 * $50), whereas the cost actually incurred is $77,000 (1,400 * $55). The variance is, therefore, $2000 unfavorable (75,000 - 77,000).

In the second case, since the fixed costs are the same for both budgeted and actual figures, the total cost variance is also $2000 unfavorable

So, the answer is $2,000 unfavorable for both the cases.

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