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Finance & Accounting
Pages 3 (753 words)
Topic: Hospital budgeting Name: Course: Instructor’s Name: Date: Variance is the total deviation of the actual result from the budgeted result. It involves calculating the difference between the achieved result and the ones that had been predetermined in the budget…
Favorable variance implies that the actual result exceeded or just equals the budgeted result in the desired direction. For example, if supplies usage is less than the budgeted the variation is favorable because it results to material savings. On the other hand a variance is said to be unfavorable if the actual result is more than the budgeted result in the wrong direction (adverse). For example, if the total wage rate exceeds the budgeted wage rate the variance is termed unfavorable, since more cash outlay is involved than the planned cost (Drury, 2007). Variance can be used to analyze the performance of different firms in the same industry such as hospitals among themselves through a standard rate. Where, it can either be represented in percentage or discrete values. In health sector variance is used to measure the extent of efficiency in utilizing health facilities. It also reveals areas that need further investigation depending on the level of deviation from the expected and the relevant range that is acceptable in the health sector. Variations within the accepted range imply that projects or operations are running on as expected. It is the managers concern that the departmental salaries were higher than the expected in this scenario. The possible causes of salary variance includes: increase in wage rate this would have resulted in adverse salary variance. ...
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