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Answered: - decompose the profit (total) variance for the aggregate


decompose the profit (total) variance for the aggregate organization and for each product line into revenue and cost variances. interpret your results


Cases in Healthcare Finance

 


 

Case Questions

 


 

CASE 7 QUESTIONS

 


 

CASCADES MENTAL HEALTH CLINIC

 

Variance Analysis

 

Hint: Because of the large number of variances involved, this case can quickly become

 

unmanageable. The best way to deal with this problem is to focus on the variance structure

 

provided in Exhibit 7.5 of the case. The spreadsheet model for this case uses this structure, which

 

divides the variances into two general categories: revenues and costs. Most of the analysis focuses

 

on costs, and the variance definitions used in the model are such that a negative variance means

 

costs are greater than expected.

 

1. What is the aggregate profit (total) variance for 2013 for the business as a whole? Interpret your

 

results.

 

2. What is the profit (total) variance for each of the four product lines? Interpret your results.

 

3. Decompose the profit (total) variance for the aggregate organization and for each product line

 

into revenue and cost variances. Interpret your results.

 

4. Decompose the revenue variances into enrollment and rate variances. Interpret your results.

 

5. Decompose the cost variances into volume and management variances. Interpret your results.

 

6. Now focus on the volume variances. Break these down into enrollment and utilization

 

variances, both in the aggregate and for the four product lines. Interpret your results.

 

7. Now focus on the management variances. Note that the case does not contain data related to

 

supplies costs or fixed costs, so the management variances are, in reality, staffing variances.

 

Break down the staffing variances into rate and efficiency variances both for each product line

 

and, within each product line, by inpatient and outpatient services. Interpret your results.

 

8. Summarize the results of your variance analysis. In this summary, focus on the underlying

 

meaning of the numbers as opposed to the numbers themselves.

 

9. Finally, what are your recommendations for management action to counter the adverse

 

financial trends experienced in 2013?

 

10. In your opinion, what are three key learning points from this case?

 


 

 


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