Is the variance positive or negative? Which is desirable, a positive or negative variance? Why? What do you think are some of the possible causes for this variance? How would you adjust Arcadia Hospital’s 2006 budget in light of your variance analysis? Explain your a (Dollars in Millions)
Operating Revenues 2005 % of rev Budget Over/(Under)
Patient revenues 500 550
less: Allowance for doubtful accounts 13 14
equals Net patient revenues 488 536
Other Income:
Investments 75 60
Misc 5 0
Total Operating Revenue 568 100.00% 596
Operating expenses:
Wages 200 35.24% 180
Taxes & Benefits 75 13.22% 70
Temporary/Contract Labor 5 0.88% 0
Medical/surgical supplies 25 4.41% 30
Other misc supplies 5 0.88% 5
Dues/subscriptions 3 0.53% 3
Transcription expense 10 1.76% 15
Leases & rentals 50 8.81% 45
Malpractice Insurance 75 13.22% 70
Other Insurance 30 5.29% 32
Professional Fees 20 3.52% 20
Utilities 15 2.64% 10
Maintenance & Repairs 15 2.64% 10
Depreciation/Amortization 7 1.23% 7
Interest Expense 1 0.18% 1
Total Operating Expenses 536 94.45% 498
Net Income 32 5.55% 98
nswer.
Here's the answer to your previous question.
http://www.jiskha.com/display.cgi?id=1249074402
To determine whether the variance is positive or negative, we need to compare the budgeted values with the actual values. In this case, the "Over/(Under)" column indicates the difference between the budgeted values and the actual values.
A positive variance means that the actual value is higher than the budgeted value, while a negative variance means that the actual value is lower than the budgeted value.
In the given data, the "Net Income" variance is positive since it shows an "Over" value of 32 (in millions). It means that the actual net income is higher than the budgeted net income.
In general, a positive variance is more desirable because it means that the actual performance exceeds the budgeted expectations, resulting in higher net income.
Possible causes for positive variances could include higher-than-expected patient revenues or cost savings in various expense categories.
To adjust Arcadia Hospital's 2006 budget in light of this variance analysis, we need to consider the specific components of the budget that led to the positive variance. For example, if patient revenues exceeded expectations, we might consider increasing the budgeted patient revenues for the next period.
Similarly, if certain expense categories had cost savings that contributed to the positive variance, we may consider reducing the budgeted amounts in those categories for the next period.
It is important to analyze the causes of the variance and make appropriate adjustments to improve budgeting accuracy and performance.