Chapter 8

Chatham Clinic has accumulated the following information regarding its patient visits: Static budget: Patient visits: 1,500 Variable cost per visit: $50 Fixed costs: $100,000 Actual results: Patient visits: 1,400 Variable cost per visit: $55 Fixed costs: $100,000 What is the management variance for Chatham Clinic? $2,000 favorable $2,000 unfavorable $7,000 favorable $7,000 unfavorable $5,000 favorable

$2,000 unfavorable

Cherry Community Hospital's budgeted and actual expenses and patient volume for 2011 are presented below: 2011 static budget: Expenses: $500,000 Patient volume: 50,000 2011 actual results: Expenses: $650,000 Patient volume: 60,000 Assuming all expenses are variable, the portion of the total variance that cannot be explained by the difference in patient volume is $50,000, unfavorable $50,000, favorable $100,000, unfavorable $100,000, favorable $150,000, unfavorable

$50,000, unfavorable

The following profit information was taken from Eastside Hospital's budget data: static budget = $1.2 million, flexible budget = $1 million, and actual results = $500,000. What is the profit variance? (Hint: An unfavorable variance is identified by a minus sign.) -$200,000 -$500,000 -$700,000 $500,000 $700,000

$700,000

Which of the following statements about a flexible budget is most correct? A flexible budget uses realized (actual) prices along with all other original (static) budget assumptions. A flexible budget uses realized (actual) labor costs along with all other original (static) budget assumptions. A flexible budget uses realized (actual) supplies costs along with all other original (static) budget assumptions. A flexible budget uses realized (actual) facilities costs along with all other original (static) budget assumptions. A flexible budget uses realized (actual) volume along with all other original (static) budget assumptions

A flexible budget uses realized (actual) prices along with all other original (static) budget assumptions.

In budgeting, variance is a measure of the degree of dispersion of a distribution about its mean value the difference between a realized value and a budgeted, or standard, value the percentage decrease in volume that can occur without causing the organization to lose money the difference between operating profit and total profit the difference between total revenues and total costs

The difference between a realized value and a budgeted, or standard, value Profit variance = Actual profit − Static profit. Revenue variance = Actual revenues − Static revenues. Cost variance = Static costs − Actual costs.. Volume variance = Flexible revenues − Static revenues. Price variance = Actual revenues − Flexible revenues. Management variance = Flexible costs − Actual costs

A hospital outpatient department budgets for 1,500 visits per year. At the end of the year, the hospital has had 1,200 patient visits. When comparing the flexible budget to the static budget, which of the following will be true? Total expenses in the flexible budget will be lower than in the static budget; volume variance for total expenses will be favorable. Total expenses in the flexible budget will be lower than in the static budget; volume variance for total expenses will be unfavorable. Total expenses in the flexible budget will be higher than in the static budget; volume variance for total expenses will be favorable. Total revenue in the flexible budget will be higher than in the static budget; volume variance for total revenue will be favorable. Total revenue in the flexible budget will be lower than in the static budget; volume variance for total revenue will be favorable.

Total expenses in the flexible budget will be lower than in the static budget; volume variance for total expenses will be unfavorable.

The operating plan focuses on how a business plans to meet the goals and objectives contained in the strategic plan. True False

True Strategic planning provides general guidance, along with specific goals and objectives, operational planning provides a roadmap for executing a business's strategic plan. A business's operating plan contains the detailed guidance necessary to meet corporate objectives. The operating plan provides the "how to" or perhaps "how we expect to" portion of an organization's overall plan for the future

Small organizations may use a single operating budget in place of multiple budgets. True False

True?

In variance analysis, it is possible for the volume variance to be negative and the management variance to be positive. True False

True? Volume variance = Static costs − Flexible costs. Management variance = Flexible costs − Actual costs.

Which of the following variances is a hospital manager most likely to be held accountable for? Labor variance Supplies variance Volume variance Answers (a) and (b) Answers (a), (b), and (c)

Answers (a), (b), and (c)

Which of the following factors are managers likely to consider when forecasting patient volume? Past trends in volume Population growth The competitive environment Answers (a) and (b) Answers (a), (b), and (c)

Answers (a), (b), and (c)?

Which of the following is not part of a business's strategic plan? Mission statement Values statement Goals Capital budget Objectives

Capital budget Parts of a strategic plan: Values statement Mission statement Vision statement Goals Objectives

Volume forecast errors have only minor consequences for planning because flexible budgets can be used to isolate the effects of volume on total budget variances. True False

False?

Which of the following statements about budgeting is incorrect? In the conventional approach, the prior budget is used as the starting point. In zero-based budgeting, the prior budget is adopted for the coming year with no changes. All organizations use annual budgets, but most also use quarterly (or more frequent) budgets. Out-year budgets are used more for planning purposes than for control. Bottom-up budgets begin at the department level and then are approved by senior management.

Out-year budgets are used more for planning purposes than for control.?

Assume that the static budget profit variance is -$200,000 while the flexible profit variance is +$200,000. Which of the following statements about this situation is most correct? When the volume forecast error is accounted for, the business lost money. When the volume forecast error is accounted for, the business broke even. When the volume forecast error is accounted for, the business made money. The business made a profit of $200,000. The business made a profit of $400,000.

When the volume forecast error is accounted for, the business made money.