Budgetary Variance Model

Budgetary Variance Model

You are evaluating the performance of the radiology department manager. The service unit or output for this department is the number of procedures. A static budget was prepared at the beginning of the year. You are now examining that budget in relation to actual experience. The relevant data are included in Table 17-18.
The department manager is pleased because he has a favorable $120,000 cost variance. Evaluate the effectiveness claims of the manager using the budgetary variance model described in this chapter.
Table 17-18
Radiology Department Data
Actual Original Budget Variance
Procedures 100,000 120,000 20,000 (Unfavorable)
Variable Cost $1,200,000 $1,320,000 $120,000 (Favorable)
Fixed Cost 600,000 6000,000 ___
Total Cost $1,800,000 $1,920,000 $120,000 (Favorable)

Average cost per unit $18.00 $16.00
Variable cost per Unit $12.00 $11.00
Fixed Cost per Unit $6.00 $5.00
Required Text
Cleverley, W. O., Song, P. H., & Cleverley, J. O. (2011). Essentials of health care finance (7th ed). Sudbury, MA: Jones & Bartlett Learning.

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