... changes in prices, and changes in how effectively resources are managed. 10-4 As noted above, a difference between the budget and actual results can be due to many factors. Most importantly, the level of activity can have a very big impact on costs. From a manager’s perspective, a variance that is due to a change in activity is very different from a variance that is due to changes in prices and changes in how effectively resources are managed. A variance of the first kind requires very different actions from a variance of the second kind. Consequently, these two kinds of variances should be clearly separated from each other. When the budget is directly compared to the actual results, these two kinds of variances are lumped together. 10-5 An activity variance is the difference between a revenue or cost item in the static planning budget and the same item in the flexible budget. An activity variance is due solely to the difference in the level of activity assumed in the planning budget and the actual level of activity used in the flexible budget. Caution should be exercised in interpreting an activity variance. The “favorable” and “unfavorable” labels are perhaps misleading for activity variances that involve costs. A “favorable” activity...
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...1. Results Interpretation: What do each of the following variance results tell us about the Clinic (i.e., what's the good news and what's the bad news)? Analyze in the aggregate and for each product line, as appropriate. If an analysis applies to more than one product line, you may combine product lines in your discussion for convenience. Use of bullet points are fine and, to the extent possible, encouraged. Profit (total) variance = actual profit – static profit Revenue= Member months x premium We see that the overall profit is -$329,366 than what was expected . What caused this variation? When it comes to revenue, ideally HMOs would like to see enrollment high and utilization low along with costs down making profit high. The main contributors to profit variances are: Revenue issues, Cost issues, or BOTH. Revenue – Cost= Profit. HMOs make money through member months (enrollment) x premiums. • The main issue with total profit variance is insufficient revenue from PC Commercial and increased costs from the other three product lines due to high utilization from which created negative variances causing decreased profits. • The static budget expected margin was 12.7% The actual profit was significantly less than static budget with the actual total margin cost being at 2.7% Revenue Variance: • The PMPM rate increased in PC comm. the biggest provider, which impacted its revenue through decreased enrollment. Its enrollee amounts were less than the aggregates...
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...Assignment 1: Variance Analysis Report In order to perform a variance analysis report Jenkins calculated the actual revenues and expenses and found the difference which was $296,610 in profits. Then Jenkins did the same with budgeted values and found the budgeted profits to be $606,350. The variance amount in turn is $309,960 under budget. Also, the variance amount for revenues is $32,100. This number is favorable due to the fact that they made more than what they had budgeted for. But on the contrary, the variance amount for expenses was $342,060, which was unfavorable because they spent far more than what they had budgeted for. This information would not be sufficient in order to explain to Norton why their profit percentage is nearly half of what they budgeted. This variance analysis report only shows the raw numbers and not any details to why they spent more on expenses than what they budgeted. Jenkins would have a difficult time explaining details to why they went over budget. She would need to show him a detailed expense report of the budgeted items and the actual amount they spent on the items. Then she would have to clearly define which items went over budget and why. This variance analysis report would not help Jenkins in the 8 am meeting she has would need to provide more information. Assignment 2: Preparing the Budget: Variance Analysis Report In order to provide more information to Norton, Jenkins will need to perform a variance analysis report. Jenkins...
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...Introduction The objective of the Learning Team D, Mauricio Cruz, Nichole Guerra, Srinivas Sangani, and Sterling Mason is to discuss and write a paper on how budgeting and variance analysis helps managers to make decisions. Budgeting and Variance Analysis The major responsibility of a manager is to plan for future. An organization to be successful, it has to make short-term and long-term plans. These plans sets the organizations objectives and ways to accomplish the goals of the organization. A budget is a formal written plan at an organizational level for the outgoing expenses and incoming revenues for a specific period. The purpose of the budget is to ensure that the funds are available to accomplish the objectives of the organization according to plan, justify the use of funds, and help plan future funding accurately. Budgeting plays a great deal in the helping with management decisions. Knowing and understanding the budget can help ease the decision making. For example, in the retail industry every store has a certain budget that strive to meet. Budgets are created from previous year’s sales and can be adjusted for various reasons. The budget numbers allocate a specific amount of labor. When these budgets are not being met, management is required to cut back on labor. Understanding how to read and forecast budgets can help the decision making process easier. Running sales to labor every day helps the management staff in understanding and budgeting correctly. For any...
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... (a) Suppose all distinct assets in the economy have a correlation of ρ = −.02 with every other asset. Let the variance of each asset be 0.25, and the investor holds an equally weighted portfolio of these assets. How many of such assets should an investor hold so that the variance of her portfolio is zero? (b) If the correlation was 0.02 can the investor ever achieve a zero variance? (c) For the case that the correlation is 0.4, and the investor holds an equally weighted portfolio of 10 assets, calculate the amount of unsystematic and systematic risk in her portfolio. 2. (Diversification over time). Suppose an investor invests $100 in a stock that in each period can either double or half with equal probability. The returns in each period are uncorrelated. (a) Calculate the variance of the investors’ dollar position after one period. (b) Calculate the variance of the investor’s dollar position after holding the stock for two periods. Report the ratio of variance after two periods to the variance after one period (in (a)). (c) Given your example for diversification with uncorrelated stocks in your class notes comment on the ratio in (b) and why you might or might not have expected it to be 0.5. (d) Suppose now in (b) that the investor only invested $36.8229 in the stock. Now calculate the variance after two periods and ratio of variance after two periods to the variance of investing $100 after one period (in (a)). 3. Suppose the CAPM holds, RF =4%, and the expected return on the market...
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...SESSION 2013/2014 BKAL3063 INTEGRATED CADE STUDY ”CASE 2: LUOTANG POWER : VARIANCES EXPLAINED” GROUP : L (3) PREPARED FOR: PROF. MADYA. DR. ENGKU ISMAIL B. ENGKU ALI PREPARED BY: NURIN NAZMIN BT AHMAD FISOL 207704 TENGKU NADIRAH BT TENGKU DANIEL 207733 SABIRAH BT ABDULLAH 207783 NAJIHA BT MOHD MISBAHHUDDIN 207785 NUR AMALINA BT ABD GHANI 207791 SUBMISSION DATE : 06 OCTOBER 2013 Table of Contents 1.0 INTRODUCTION 4 2.0 MAIN ISSUE 5 3.0 FINDINGS 7 4.0 STANDARD COST 12 5.0 RECOMMENDATION 13 6.0 CONCLUSION 15 1.0 INTRODUCTION Tan Min Yi who was the general manager of Luotang Power, a coal-fired power plant located in central China. He should make a presentation to the Board of Directors of his parent company, China Hua Tong Power (HT Power). Tan knew that his company had performed well during that year, both plant availability and fuel economy improved over the previous year but it just didn’t show up in the financial report. Hubei Provincial Power Company (HPPC) was the primary customer of Luotang that had made a contract for a minimum annual purchase of total electricity of 3,000,000MWh every year. However, there had been limited opportunity to sell energy above the contractual minimum, either to HPPC or others. If the amount of sell would be reduced, the contract required that Luotang sell amounts in excess of minimum annual purchase at approximately 65% of regular price. Luotang also made...
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...Transformation Efforts Fail | x | 2 | Conceptual models and the Cuban Missile Crisis | | 2 | The Hidden Traps of Decision making | x | 3 | Control in the age of empowerment | x | 3 | The Real Budget Crisis: Stop Rewarding Forecasting and Negotiating Instead of Real Performance | x | 3 | Note on flexible budgeting and variance analysis | x | 3 | Borealis Case | | 4 | Note on Organization Structure | | 4 | Note on Organization Culture | | 4 | Designing Organizations for Performance: The Alignment of Design and Strategy | | 5. | On the folly of rewarding A, While hoping for B | | 5 | Incentives within Organizations | | 5 | Strategy to implementation: Seeking alignment | | 5 | Measuring performance | | 7 | GE’s growth strategy: The Immelt inititative | | Week 3 Control in Age of Empowerment Creativity and control don’t have to conflict Failure to control employees appropriately Managers can encourage innovation among employees while ensuring adequate control by using four powerful management systems or levers. 1- Diagnostic control systems Traditional monitors of critical performance outcomes such as costs and revenues 2- Belief systems Encompass the company’s values, mission and other statements of philosophy 3- Boundary systems Based on power of negative thinking Tell your employees what not to do 4- Interactive control systems Sharing market information and encouraging creative responses while helping people avoid pitfalls ...
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...Discuss budgetary items that raise concern in the budget planning A master budget is the central planning tool for a company; it should include the following areas: * Direct Labor Budget * Direct/Raw Materials Budget * Finished Goods Budget * Manufacturing Overhead Budget * Production Budget * Sales Budget * Selling and Administrative Expense Budget Competition Bikes’ budget is subdivided into smaller budgets. The objective of the master budget is to provide a forecast based on sales projections for the next budget period (quarter, semester or a year). The master budget should meet the company goals. After analyzing the master budget for Competition Bikes we found a few areas of concern: The first one was a disregard of previous years’ trends. When year eight was analyzed we discovered changes in the economy which negatively impacted the company because of a decrease in sponsorships affecting the company’s sales. Competition Bikes should have taken a more conservative approach and set the budget at the same level of sales of year eight or have a more conservative increase on sales projections at no more than 1.5%, to reduce the risk of creating over sales and as a consequence to trigger a ripple effect of over-budgeting the operational and production budgets. Another area of concern is that utilities expenses were double recorded, once under “utilities” and another under “utilities and services”. In the same area of utilities we identified...
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...• Budget management analysis is used by mangers as a tool and helps determine that all resources available are being used efficiently. The budgets are determined yearly and are based upon the previous year’s budget and variances. This paper will discuss specific strategies to manage budgets within forecast, compare five to seven expense results with budget expectations, describe possible reasons for variances, give strategies to keep results aligned with expectations, recommend three benchmarking techniques, and identify those that might improve budget accuracy, and justify the choices made. • How are operating budgets developed, for what time frame and who is involved? The operating budget is a plan for the organization’s revenues and expenses that generally covers a period of one year. In healthcare organization the nurse manager of each cost center involves in the preparation and control of the operating budgets. The finance office of the organization provides support throughout the budget process development. The budgets for the costs centers are combined, and the executive management of the organization makes final decisions on a budget to be submitted to the board for approval. The nurse managers need a variety of information to begin the process of preparing operating budgets for their cost centers, such as the information generated by the organization’s environmental review and by its development of general goals, objectives, policies, organization wide assumptions...
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...Variance Analysis A manager of a variable hospital department has many responsibilities. The manager is accountable for budgeting and to protect profits. The financial manager is responsible for guarding overspending and generating profits. They are active in the budgeting process throughout the fiscal year. The budget department manager communicates with other managers, and accounting departments concerning budget issues, financing, and concerns in the organizations departments. Sometimes situations occur whereas payroll salaries are high and supplies are lower than planned and budgeted. The budget manager is responsible for providing feedback about finances, revenue, and any potential variances in the budgeted costs. This essay will be based on a scenario of salaries that were higher and supplies lower than initially budgeted. This paper will explore variances in the scenario mentioned earlier, and explain the relationship between variance reporting, interpreting variance reporting results, and the results of performance within a health care organization. The hospital variable department has experience a case in which employee salaries are higher than budgeted, while the supplies are lower than initially budgeted. This is the result of an epidemic of asthma patients who were admitted to the hospital over the last three months. The hospital approved overtime to assist in the growing number of patients and to accommodate their needs. In the process of caring for patients more...
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...9/1/13 Tirizia York Variance Analysis A variance report involves a way for business executives and department managers to approximate their company’s performance. By examining one set of figures against another, and comparing the planned amount to an actual amount. In the proceeding paragraphs, I will explain how to give a detailed variance report analysis to the vice president of the hospital where I work at, explaining the factors that led up to my salaries for the previous month being higher than the supply figures on my budget reports. It’s the beginning of the month and as I sit at my desk reviewing my previous month’s budget report, I see where my budgeted salaries in my department alone are higher than the supply cost for the previous month. Then while sitting there it comes to me that I have a variance report due to the vice president of my department next week, where will have to give an explanation as to how for the month of June my salaries are higher than my supplies. I see this is going to be a long day so off to the break room to grab a cup of water, and my coffee close my office door and turn on some soft music and” let’s get started”. The first thing on the agenda is to is to run an analysis report that shows the number of employees worked and production along with what supplies were used and the costs of the supplies used. After importing the data on my excel spreadsheet and reviewing the items in red are representing variances with a plus or minus...
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...What Mr. Tan worried about is that the net profit from operation in 2011 (578,751K RMB) is not as good as it is in 2010 (670,061K RMB). We concentrate on the variance between 2010 and 2011 and the data variance shall show us why the net operation income decreased. Relevant Data * Production: (MWh) | 2010 | 2011 | Contractual Energy | 3,000,164.00 | 3,000,325.00 | Exess Energy | 937,666.00 | 427,214.00 | Total | 3,937,830.00 | 3,427,539.00 | * Price: (RMB/KWh) | 2010 | 2011 | Contractual price | 0.4219 | 0.4238 | Excess Energy price | 0.2531 | 0.2120 | Average | 0.3817 | 0.3974 | * Coal: | 2010 | 2011 | Mass of coal per MWh (Ton/MWh) | 0.347 | 0.346 | Total Coal Consumed (Ton) | 1,366,269.819 | 1,185,863.446 | Total Cost of Coal (RMB) | 362,062,000.000 | 320,183,000.000 | Coal price (RMB/Ton) | 265.000 | 270.000 | * Explanation: The production form shows the variance in total production between 2010 and 2011. This affects the revenue performance of the company. The price form shows the sales price variance in 2010 and 2011. This will also affects the revenue performance. The coal form shows the variance of fuel efficiency and fuel cost in 2010 and 2011. Data Variance | Contract Minimal | Excess | Total | Quantity Var | 67,925.90 | -129,185,192.16 | -129,117,266.26 | Price Var | 5,700,617.50 | -17,554,223.26 | -11,853,605.76 | Fuel Efficiency Var | - | - | 957,626.79 | ...
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...Variance Analysis To complete the following assignment, go to this week's Assignment link in the left navigation. Volume, Risk, and Price Variances 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. Submit to your instructor your two-to-three page Word document...
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...The purpose of this simulation was to create to determine if JET Copies needs to purchase a back up copier. To begin, information had to be gathered which was given based on research the founders of JET Copies did to determine the length of time between breakdowns, the probability of repair times, and the revenue they would take in daily. Because there is a variance amongst the days it would take to repair the copier as well as the revenue being lost, creating this simulation helps JET Copies make the best decisions considering all the possibilities through sampling and probability. While it would be more accuracy to follow the physical process to make the decision based on true, random occurrences, JET Copies wants to know the number of breakdowns and repair time for a year which calls for this simulation of random numbers. To begin this simulation the repair time table had to be computed because it would give an introduction overview of the probability of the repair time needed to fix any breakdowns; it would also be needed to fulfill some details in the next table as well. Based on this table the following information was gathered: the probability that it would take one to two days to repair a breakdown would be 65 percent whereas for it to take three days or more would be 90 percent. After this table was created it was time to focus on the main table of the simulation which would provide more detailed information from a probability basis. The first column of the second...
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...000*0.40 + $45,000*0.60 = $75,000 Since the optimal profit without perfect information is $45,000, the maximum amount the owner can pay for perfect information is $75,000 - $45,000 = $30,000 1 Decision Tree Final Problem The NC Airport Authority is trying to solve a difficult problem with the over-crowded RaleighDurham airport. There are three options to consider: A. The airport could be totally redesigned and rebuilt at a cost of $8.2 million. The present value of increased revenue from a new airport is in question. There is a 70% chance this present value would be $11 million, a 20% chance present value would be $5 million, and a 10% chance present value would be $1 million, depending on whether the airport is a success, moderate success, or a failure. B. The airport could be remodeled with a new runway for a cost of $4.7 million. The present value of increased revenue would be $6 million (80% chance) or $3 million (20% chance). C. They could do nothing with the airport and suffer a loss of revenue of either $1 million...
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