Carroll's flexible budget for 2020 is as follows:
I. Volume:
A. FFS Carroll Clinic:
- Number of visits: 34,000
B. Capitated lives:
- Number of member-months: 30,000
- Actual utilization per member-month: 1.14 visits
C. Total actual visits: 77,200
II. Revenues:
A. FFS: $43,200
B. Capitated lives: $360,000
C. Total actual revenues: $403,200
III. Costs:
A. Variable Costs:
- Labor Supplies: $952,000
- Total variable costs: $1,942,000
- Variable cost per visit: $17.72
B. Fixed Costs:
- Overhead, plant, and equipment: $1,368,000
C. Total actual costs: $1,893,000
IV. Profit and Loss Statement:
Revenues:
- FFS: $43,200
- Capitated: $360,000
- Total: $403,200
Costs:
- Variable: $1,975,000
- Fixed: $1,368,000
Contribution margin: $49,000
Actual profit: $602,487
To calculate the profit variance, revenue variance, and cost variance, we need to compare the actual
results with the budgeted or expected results.
Profit Variance:
Profit Variance = Actual Profit - Budgeted Profit
Profit Variance = $602,487 - $550,000 (Budgeted Profit)
Profit Variance = $52,487
Revenue Variance:
Revenue Variance = Actual Revenues - Budgeted Revenues
Revenue Variance = $403,200 - $403,200 (Budgeted Revenues)
Revenue Variance = $0
Cost Variance:
Cost Variance = Actual Costs - Budgeted Costs
Cost Variance = $1,893,000 - $1,942,000 (Budgeted Costs)
Cost Variance = -$49,000
So, the profit variance is $52,487 (favorable), the revenue variance is $0, and the cost variance is $49,000 (unfavorable).
To calculate the volume variance and price variance, we need to break down the cost variances into
their respective components.
Component Volume Variance:
Component Volume Variance = (Actual Volume - Budgeted Volume) * Budgeted Price
For labor:
Component Volume Variance for Labor = (34,000 hours - 34,000 hours) * $27/hour = $0
For supplies:
Component Volume Variance for Supplies = (360,000 units - 360,000 units) * $2.75/unit = $0
Component Price Variance:
Component Price Variance = (Actual Price - Budgeted Price) * Actual Volume
For labor:
Component Price Variance for Labor = ($27/hour - $27/hour) * 34,000 hours = $0
For supplies:
Component Price Variance for Supplies = ($2.75/unit - $2.75/unit) * 360,000 units = $0
So, both the component volume variance and component price variance for labor and supplies are $0.
To break down the cost variance into volume and management components, we first need to identify
the flexible budget costs and the static budget costs.
Flexible Budget Costs:
Flexible Budget Costs = Budgeted Price * Actual Volume
For labor:
Flexible Budget Costs for Labor = $27/hour * 34,000 hours = $918,000
For supplies:
Flexible Budget Costs for Supplies = $2.75/unit * 360,000 units = $990,000
Static Budget Costs:
Static Budget Costs = Budgeted Price * Budgeted Volume
For labor:
Static Budget Costs for Labor = $27/hour * 34,000 hours = $918,000
For supplies:
Static Budget Costs for Supplies = $2.75/unit * 360,000 units = $990,000
Now, let's calculate the volume and management components.
Volume Variance:
Volume Variance = Flexible Budget Costs - Static Budget Costs
For labor:
Volume Variance for Labor = $918,000 - $918,000 = $0
For supplies:
Volume Variance for Supplies = $990,000 - $990,000 = $0
Management Component:
Management Component = Actual Costs - Flexible Budget Costs
For labor:
Management Component for Labor = $952,000 - $918,000 = $34,000 (Unfavorable)
For supplies:
Management Component for Supplies = $990,000 - $990,000 = $0
Therefore, the volume variance for both labor and supplies is $0, while the management component for
labor is $34,000 (unfavorable), and for supplies, it is $0.
To break down the management variance into labor, supplies, and fixed costs variances, we first need to
identify the flexible budget costs and the static budget costs for each category.
Flexible Budget Costs:
- Labor: $918,000
- Supplies: $990,000
- Fixed Costs: $1,368,000
Static Budget Costs (same as flexible budget costs):
- Labor: $918,000
- Supplies: $990,000
- Fixed Costs: $1,368,000
Actual Costs:
- Labor: $952,000
- Supplies: $990,000
- Fixed Costs: $1,368,000
Now, let's calculate the management variance for each category:
1. Labor Management Variance:
Labor Management Variance = Actual Labor Costs - Flexible Budget Labor Costs
Labor Management Variance = $952,000 - $918,000 = $34,000 (unfavorable)
2. Supplies Management Variance:
Supplies Management Variance = Actual Supplies Costs - Flexible Budget Supplies Costs
Supplies Management Variance = $990,000 - $990,000 = $0
3. Fixed Costs Management Variance:
Fixed Costs Management Variance = Actual Fixed Costs - Flexible Budget Fixed Costs
Fixed Costs Management Variance = $1,368,000 - $1,368,000 = $0
Therefore, the management variance for labor is $34,000 (unfavorable), while the management
variances for supplies and fixed costs are both $0.
To break down the labor and supplies variances into rate/price and efficiency/usage components, we
first need to calculate the flexible budget costs and actual costs per unit for each category.
Flexible Budget Costs:
- Labor: $918,000
- Supplies: $990,000
Actual Costs:
- Labor: $952,000
- Supplies: $990,000
Number of Units:
- Labor: 34,000 hours
- Supplies: 360,000 units
Now, let's calculate the rate/price and efficiency/usage variances for each category:
1. Labor Rate/Price Variance:
Labor Rate/Price Variance = (Actual Labor Rate - Flexible Budget Labor Rate) * Actual Labor Hours
Actual Labor Rate = Actual Labor Costs / Actual Labor Hours
Flexible Budget Labor Rate = Flexible Budget Labor Costs / Flexible Budget Labor Hours
Actual Labor Rate = $952,000 / 34,000 hours = $28 per hour
Flexible Budget Labor Rate = $918,000 / 34,000 hours = $27 per hour
Labor Rate/Price Variance = ($28 - $27) * 34,000 hours = $34,000 (unfavorable)
2. Labor Efficiency/Usage Variance:
Labor Efficiency/Usage Variance = (Actual Labor Hours - Flexible Budget Labor Hours) * Flexible Budget
Labor Rate
Labor Efficiency/Usage Variance = (34,000 hours - 34,000 hours) * $27 per hour = $0
3. Supplies Rate/Price Variance:
Supplies Rate/Price Variance = (Actual Supplies Price - Flexible Budget Supplies Price) * Actual Supplies
Units
Actual Supplies Price = Actual Supplies Costs / Actual Supplies Units
Flexible Budget Supplies Price = Flexible Budget Supplies Costs / Flexible Budget Supplies Units
Actual Supplies Price = $990,000 / 360,000 units = $2.75 per unit
Flexible Budget Supplies Price = $990,000 / 360,000 units = $2.75 per unit
Supplies Rate/Price Variance = ($2.75 - $2.75) * 360,000 units = $0
4. Supplies Efficiency/Usage Variance:
Supplies Efficiency/Usage Variance = (Actual Supplies Units - Flexible Budget Supplies Units) * Flexible
Budget Supplies Price
Supplies Efficiency/Usage Variance = (360,000 units - 360,000 units) * $2.75 per unit = $0
Therefore, the breakdown of labor and supplies variances into rate/price and efficiency/usage
components are as follows:
- Labor Rate/Price Variance: $34,000 (unfavorable)
- Labor Efficiency/Usage Variance: $0
- Supplies Rate/Price Variance: $0
- Supplies Efficiency/Usage Variance: $0