Refer to Problem 8.4. Assume the results reported in that problem hold, except that a difference… 1 answer below »

Refer to Problem 8.4. Assume the results reported in that problem hold, except that a difference existed among budgeted, static enrollment and realized enrollment. The corrected results are:

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a. Construct Carroll’s flexible budgets for 2007. (Hint: Because of a change in enrollment, creating three flexible budgets is necessary. See the note to Figure 8.2.)

b. What are the profit variance, revenue variance, and cost variance?

c. Focus on the revenue side. What is the volume variance? The price variance? Break the volume variance into enrollment and utilization components. How does your answer here differ from your corresponding answer to Problem 8.4?

d. Now consider the cost side. What are the volume and management variances? Break down the management variance into labor, supplies, and fixed costs variances.

e. Interpret your results. In particular, focus on the differences between the variance analysis here and the one in Problem 8.4.

Problem 8.4

Refer to Carroll Clinic’s 2007 operating budget contained in Table 8.3. Instead of the actual results reported in Table 8.4, assume the results reported below:

 

a. Construct Carroll’s flexible budget for 2007.

b. What are the profit variance, revenue variance, and cost variance?

c. Consider the revenue variance. What is the component volume variance? The price variance?

d. Break down the cost variance into volume and management components.

e. Break down the management variance into labor, supplies, and fixed costs variances.

f. Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter.