Reference no: EM132507583

Administration provides the general pediatrics department with the following report that describes their financial performance relative to their budgeted goals.

Budgeted expenses - 250,000

Flexible expense budget - 290,000

Actual expenses - 285,000

Budgeted revenue - 300,000

Flexible revenue budget - 325,000

Actual revenue - 315,000

Use this information to answer the following questions:

Question a. What were the revenue and expense variances?

Revenue Variance = Actual Revenue - Budget Revenue

= 315,000 - 300,000

= 15,000.

Expense Variance = Budget Expense - Actual Expense

= 250,000 - 285,000

= (35,000)

Question b. Physicians in the general pediatrics department were surprised to see these numbers. They said they felt like they'd been working hard to control costs and didn't expect to see a negative expense variance (hint: if you didn't calculate a negative expense variance for part a, check your work). The physicians acknowledge, however that they saw more patients than they expected, and they think this may account for the negative expense variance. Is this true? Provide a metric to support your answer.

Yes,

Volume Variance = Budget - Flexible Budget

Actual Expense (285,000) - Flexible Expense (290,000) = - 5,000.

Question c. One of the insurers that covers a large number of the practice's patients implemented a change in reimbursement rates during the past month. The physicians had been concerned about the financial effects of the rate change. After looking at the budget variance report, however, they conclude that the rate change didn't harm their revenues and may have actually been beneficial. Are they correct? Provide quantitative support for your answer (i.e. calculate a variance and use it to support your answers).