Price, Volume, and Risk Variances

Price, Volume, And Risk Variances Analysis

The first step in the computation of revenue is to calculate volume, and price variances:

Number of patients receiving flu shots =1200

Charge per flu shot =$

Number of flu patients=1400

Charge per patient =$

Formula to calculate the projected revenue Total Revenue is as follows:

= "Number of total patients receiving flu shots * total charge per flu shot) + (Number of total flu patients * total charge per patient)"

= (1200 x 55) + (1400 x 70)

= 66,000 + 98,000

Total Revenue = $164,000.

The next step is to calculate the projected revenue as revealed as follows:

Projected Revenue:

Estimated total number of flu shots =400

Estimated total charge per flu shot =$

Estimated number of flu patients = 1,600

Estimated charge per patient = $

Formula to calculate the projected revenue is as follows:

(Estimated total number of flu shots * estimated total charge per flu shot) + (estimated total number of flu patients * estimated total charge per patient).

Projected Revenue= (400 x 50) + (1600 x 80)

Projected Revenue= (20,000 + 128,000)

Projected Revenue= $148,000.

The next step is to calculate the costs of additional staff

Cost for Additional Staff

The formula to calculate the costs of additional staff is as follows:

Costs= (number of hours x pay per hour).

Costs= (1000 x $40)

Costs = $40,000

The next step is to calculate the total profits.

Total Profits

Total Profit: (Actual Revenue - Cost)

Total Profit = $164,000 - $40,000

Total Profit = $124,000.

Based on the revenue perspective, the medical group is able to make 10% more than the original estimated total profits.

Meaning of Variances

A budget variance is the difference between projected budget and actual budget. In other words, the concept of variance is connected with actual and planned results. However, variance is categorized based on the outcome of the computed variance. When the actual budget results are greater than the expected results, the company records a favorable variance. However, when the expected budgeted results are better than the actual results, the company record unfavorable variance.

In essence, variance analysis is the management accounting tool to control or evaluate the performances of budgeted amount, product cost or price of goods and services. Variance analysis can also be used to evaluate the company costs and revenues. Moreover, variance analysis can be used to evaluate the difference between standard costs and actual costs. For example, difference in costs of materials can be divided into materials usage variance and materials price variance. (Larson, 2004). Essentially, the costs variance is considered favorable if the budgeted or standard costs are greater than the actual costs. On the other hand, the cost variance is unfavorable if the budgeted costs are less than the actual costs. Accounting variance can also be broken down into quantity variance which is a difference between actual product quantity and the standard product quantity. More importantly, a price variance provides the different between the actual product price and the standard product price. (Ott, & Schilling, 1990). When unfavorable costs variance or budget variance occurs, it is critical for management to identify the factors that may be responsible for the unfavorable variance and take appropriate steps to correct the problems. In the case of the Medical Group, the actual revenue is $164,000, however, the projected revenue $148,000, the group has recorded the favorable budget variance because the actual projected revenue is greater than the actual revenue.