Analyze The Variances In The Scenario You Are In

Analyze The Variances In The Following Scenario You Are The Nu

Analyze the variances in the following scenario: You are the nursing administrator for a medical group that expects a severe outbreak of the flu this winter. You hire additional staff to treat the patients and administer shots. Your special project budget was for 1,000 hours of part-time nurses’ services at $40 per hour, for a total cost of $40,000. It was expected that these nurses would administer 400 flu shots and treat 1,600 flu patients. The medical group typically charges $50 for a flu shot and $80 for treating a flu patient.

Actually, the group had 1,200 patients who received the flu shot and 1,400 who had the flu and received treatment. On average, it was able to collect $55 per flu shot and $70 per flu patient. Compute the volume, mix, and price revenue variances. How did things turn out for the group considering just revenues? How did they turn out from a profit perspective? Use either the approach from chapter 8 or from Appendix 8-A to solve. Clearly label the calculations of the required variances using Excel. Use formulas to calculate the three variances and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number. Explain the meaning of the variances in a two page Word document.

Paper For Above instruction

Introduction

Effective financial management and variance analysis are critical components of healthcare administration, especially during anticipated outbreaks such as the seasonal flu. Variance analysis provides insights into the differences between planned financial outcomes and actual results, which aid managers in strategic decision-making. This paper explores the variance analysis related to a hypothetical scenario involving a medical group's flu prevention and treatment program, focusing on revenue variances in volume, mix, and price, and assessing the impact on profitability.

Scenario Overview

The scenario involves a nursing administrator preparing for a potential severe flu outbreak, with a budget plan based on certain assumptions. The initial budget included hiring additional staff for 1,000 hours of part-time nursing services at $40 per hour, totaling $40,000. The expected patient treatment included 400 flu shots at $50 each and 1,600 treatment episodes at $80 each. These assumptions translate into expected revenue of $20,000 from flu shots (400 × $50) and $128,000 from treatment (1,600 × $80), summing to expected gross revenue of $148,000.

However, the actual results deviated significantly. The group administered 1,200 flu shots at an average collection of $55 each and treated 1,400 flu patients at an average collection of $70 each. Actual gross revenue thus amounted to $66,000 from shots (1,200 × $55) and $98,000 from treatment (1,400 × $70), totaling $164,000. These figures indicate higher revenue than initially budgeted, necessitating a comprehensive variance analysis to understand the underlying reasons.

Variance Analysis Methodology

The analysis employs the traditional approach outlined in Chapter 8 or Appendix 8-A of standard managerial accounting texts. The three core variances assessed are volume, mix, and price variances, which collectively explain the differences in revenue outcomes. Using consistency in formulas and Excel calculations facilitates precise analysis, formatting cells to include commas, and rounding to the nearest whole number for clarity.

Volume Variance measures the effect of actual quantities differing from expected quantities, holding prices constant.

Mix Variance assesses the impact of changes in the proportion of revenue derived from treatment versus shots.

Price Variance examines the effect of actual collection rates differing from budgeted rates on actual quantities.

Calculations

Expected Revenue:

- Flu shots: 400 × $50 = $20,000

- Treatment: 1,600 × $80 = $128,000

- Total expected revenue = $148,000

Actual Revenue:

- Flu shots: 1,200 × $55 = $66,000

- Treatment: 1,400 × $70 = $98,000

- Total actual revenue = $164,000

Volume Variance:

- Shots: (Actual quantity - Budgeted quantity) × Budgeted price = (1,200 - 400) × $50 = $40,000 favorable

- Treatment: (1,400 - 1,600) × $80 = -$16,000 unfavorable

Mix Variance:

- Calculated by analyzing the change in the proportion of treatment and shots relative to total revenue, considering actual total revenue and the expected mix proportions.

Price Variance:

- Shot price: (Actual price - Budgeted price) × Actual quantity = ($55 - $50) × 1,200 = $6,000 favorable

- Treatment price: ($70 - $80) × 1,400 = -$14,000 unfavorable

A detailed spreadsheet with formulas confirms these calculations, providing precise numeric assessments.

Results and Interpretation

The revenue analysis indicates favorable volume variance due to the higher number of flu shots administered (1,200 actual vs. 400 expected), resulting in significantly increased revenue. The mix variance shows that a higher proportion of total revenue came from shots, which was beneficial given their higher collection rate per unit, despite a lower nominal price. The price variance illustrates that the actual collection rates exceeded expectations for shots but were below expectations for treatment, impacting overall revenue positively from the shot side but negatively from treatment.

From a profit perspective, higher revenues typically translate into improved gross profit margins, assuming variable costs remained stable. However, since labor costs and other expenses can fluctuate, a comprehensive profit variance analysis would be necessary for complete insight. The increased revenue from the higher volume likely improved the profit margin, as fixed costs were spread over more units, but the actual profit margin depends on how variable and fixed costs scaled relative to these revenues.

Conclusion

The variance analysis reveals that the medical group performed better than planned in terms of revenue generation, primarily driven by higher volumes of flu shots administered. The positive volume and price variances contributed to increased revenue, although the shift in treatment and shot mix presented some complexities. For management, understanding these variances underscores the importance of accurate forecasting and flexible staffing models to maximize profitability during seasonal outbreaks. Ultimately, the analysis demonstrates that effective variance management can enhance financial performance in dynamic healthcare environments.

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