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Determine the revenue variance from Arcadia Hospitals 2005

Determine the revenue variance from...
Determine the revenue variance from Arcadia Hospital’s 2005 budget.
• Address the following: Is the variance positive or negative? Which is desirable, a positive or
negative variance? Why? What do you think are some of the possible causes for this variance?
How would you adjust Arcadia Hospital’s 2006 budget in light of your variance analysis? Explain
your answer. Please I need this no later than 7 pm on Thursday 3/26/09.
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3/26/2009
Bill Smith
Bill Smith, Graduate Student
Category: Homework
Satisfied Customers: 12
Experience: Certifications in all MS Applications, MBA
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In order to calculate the variance, please provide the revenue figures.
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Customer reply replied 8 years ago
Arcadia Hospital
Income Statement
YTD Dec 31, 2005
(Dollars in Millions)
Operating Revenues2005% of revBudgetOver/(Under)
Patient revenues500 550
less:Allowance for doubtful accounts13 14
equalsNet patient revenues488 536
Other Income:
Investments75 60
Misc5 0
Total Operating Revenue568 100.00%596
Operating expenses:
Wages200 35.24%180
Taxes & Benefits75 13.22%70
Temporary/Contract Labor5 0.88%0
Medical/surgical supplies25 4.41%30
Other misc supplies5 0.88%5
Dues/subscriptions3 0.53%3
Transcription expense10 1.76%15
Leases & rentals50 8.81%45
Malpractice Insurance75 13.22%70
Other Insurance30 5.29%32
Professional Fees20 3.52%20
Utilities15 2.64%10
Maintenance & Repairs15 2.64%10
Depreciation/Amortization7 1.23%7
Interest Expense1 0.18%1
Total Operating Expenses536 94.45%498
Net Income32 5.55%98

 

 

These are approaches to valuation:

Rules of thumb: (twice annual revenues) = $1136 million

2) Adjusted book value: (owner's equity) = $7900 million

3) Discounted cash flow:

Cash flow amount

 

Capitalization rate

 

Value

$655 million (assume same as 2006!)

6%

$10,917

8%

$8,187

10%

$6,550

12%

$5,458

 

 

Although there are many ratios in use, some of the key ratios are formulated and described below:

  • Current ratio= (current assets/current liabilities)
  • Quick ratio= ((current assets-inventory)/current liabilities)

These two ratios are short-term liquidity ratios. They are calculated to ascertain how well a business is in paying its current liabilities, in case it has to in an emergency situation.

 

If you need anything else, please let me know. Thank you! Customer/p>

 

Determine the revenue variance from Arcadia Hospital's 2005 budget.

 

Is the variance positive or negative?

 

Looking only at revenue:

Patient Revenue for '05 = 500 while budget = 550, this means that patient revenue is under budget. Since the focus is on revenue and not costs, under budget is unfavorable, meaning that there was less actual revenue than expected when the budget was created.

 

Net patient revenue is under budget by 49, unfavorable, less incoming revenue than planned with the budget.

 

Total Operating Revenue: under budget by 29, unfavorable, less incoming revenue than planned with the budget.

 

Which is desirable, a positive or negative variance?

When focusing on revenue, it is favorable to be over budget, more actual revenue than planned with the budget. Under budget, would indicate less revenue than budgeted which is unfavorable.

 

When focusing on costs, it is favorable to be under budget, less actual costs than originally budgeted. It is unfavorable to be over budget, more actual costs than budgeted.

 

Why? What do you think are some of the possible causes for this variance?

Some possibilities for the revenue shortage could be too much competition from other hospitals, more advertising from other hospitals, and poor level of care from this hospital. Another possibility is low prices.

 

How would you adjust Arcadia Hospital's 2006 budget in light of your variance analysis?

If the hospital does not expect to take action to increase revenue, then the plan for future years may need to be lowered if they expect diminished revenue streams going forward.

 

 

Bill Smith
Bill Smith, Graduate Student
Category: Homework
Satisfied Customers: 12
Experience: Certifications in all MS Applications, MBA
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Customer reply replied 8 years ago

Bill,

 

Thank you so very much for your help. I have also posted another question. Could you take the time to see if you could help me with it? It is a final finance project. I will wait for your response.

 

Customer/p>
I'm not seeing your new question. To appear on my list of possible questions it needs to be under the homework experts category. Please accept the completed question.
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Customer reply replied 8 years ago

Bill,

 

I will repost my other assignment. I will also add an additional $10.00 to the $65.00 already posted for to pay for this reply. I will post my assignment to the financial expert with your name on it.

 

Thank you,

 

Customer/p>
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Customer reply replied 8 years ago

Justanswer has given this assignment to Mohammad Ali. I don't know how to change this once it has been accepted by someone else. I will however, post to the homework expert requesting your name to pay you for your time here. I hope that is adequate.

 

Thank you,

 

Customer/p>
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