Budgetary Variance Model
Prior to completing this assignment, review Assignment 9 in Chapter 17 of your course text. Prepare an evaluation of the performance of the Radiology Department Manager for a hospital.
The service unit, or output, for this department is the number of procedures performed. A static budget was prepared at the beginning of the year. Examine that budget in relation to actual experience. The relevant data are included in Table 17-18 in your course text. The department manager is pleased because the department has a favorable $120,000 cost variance. Evaluate the effectiveness claims of the manager using the budgetary variance mode described in Chapter 17. What is your analysis of the department manager’s performance? Explain your reasoning.
Your paper must include an introduction, thesis, and conclusion. Your paper must be four to five double-spaced pages in length (excluding title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center. Utilize three scholarly and/or peer-reviewed sources (excluding the course text) that were published within the last five years. Cite your sources within the text of your paper and provide complete references for each source used on the reference page.
Assignment 9.
In your evaluation you can calculate spending and volume variances for the radiology department. The total variance would be calculated as follows:
Actual cost less assigned cost (actual costs less actual volume times budgeted cost per unit)
or
$1,800,000 – (100,000 × $16.00) = $200,000 (unfavorable)
The radiology department has an unfavorable variance of $200,000, as opposed to a favorable variance of $120,000. The $200,000 unfavorable variance can be broken into spending and volume variances:
Spending variance=actual costs−budgeted fixed costs−budgeted variable cost=$1,800,000−$600,000−($11×100,000)=$100,000(unfavorable)
Volume variance=(budgeted volume−actual volume)×budgeted average fixed cost=(120,000−100,000)×$600,000/120,000)=$100,000(unfavorable)
The department manager may not be responsible for the volume variance, but the unfavorable spending variance of $100,000 should be analyzed to see what caused it. More detail would permit further breakdowns by price and efficiency variances.
