Finance Chapter 8 Essay

679 Words Sep 25th, 2013 3 Pages
Problems:

8.1: Data for Newark General Hospital (In Millions of Dollar):

| |Static Budget |Flexible Budget |Actual Result |
|Revenues |4.7 |4.8 |4.5 |
|Costs |4.1 |4.1 |4.2 |
|Profits |0.6 |0.7 |0.3 |

A. Calculate and interpret the profit variance.

Profit Variance = Actual Profit – Static Profit
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E. Calculate and interpret the Volume and management variances on the cost sides.

Volume Variance = Static Costs – Flexible Costs = 4.1 – 4.1 = 0 In words Newark General Hospital had no affect of volume to the costs of the Hospital, so, there was no change in the volume, which leaded to higher cost.

Management Variance = Flexible Costs – Actual Costs =4.1 – 4.2 = -0.1 In words, in the Hospital cost overrun happened by some factor which are either controllable or can be controlled by management.

F. How are the variances calculated above related? Explaining variances in financial statements is vital to the success of a business. Variances are the difference between budgeted amounts and actual income or expenses. Managers use variance reports to make changes in financial forecasts and monitor the performance of a business or organization. Variance explanations might prompt a manager to put stronger financial controls in place or to reallocate resources.

8.2: 2007 revenues for the Wendover Group Practice Association for four different budgets, in thousands of dollars:
| |Flexible

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