Question 1

The company’s budget was reviewed against their actual expenses. The review indicates that it did not perform well in the annual reports for that year. Budgets are used by organizations to distribute resources appropriately to achieve company goals. At the end of the financial period, the budgets are reviewed against the actual expenses to determine whether the company achieved the goals (Oyadomari, Afonso, Dultra-de-Lima, Neto, & Righetti, 2018). The performance indicates that fixed expenses are separated from the variable expenses for the year. Variable expenses refer to costs that can change throughout the financial year (Lennox, Fargione, Spector, Williams, & Armsworth, 2017). In the scenario, they are utilities, purchased services, medical fees, nursing and administration labour and benefits, bad debts, and medical supplies. 

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On the other hand, fixed expenses refer to fixed costs that do not change throughout the year. The report identifies insurance, interests, pension, lease, and depreciation as the fixed expenses that the company incurred for the year. 

The favourable results are medical fees, nursing expenses, utilities, and purchasing expenses. 

Unfavourable results are employee benefits, administration labour expenses, bad debt expenses, and medical supplies. 

The per-unit cost = $156.00

The contribution margin = $453,229

The medical supplies show the greatest variance

Question 2

Favourable variance is the profits that are more than the initial budget. The favourable variance after the redraft is the utility fees. 

The unfavourable variance occurs in cases where the actual cost of an item is more than the initial budget. Here, they are bad debt expenses, medical fees, and nursing and administration labour expenses. They cause financial challenges to the organization because the revenue realized becomes less than the expectation predicted in the initial budget (Oyadomari et al., 2018). The information helps in making various management decisions such as determining staffing hours and stocking supplies. 

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The target operating income: 339,100

The lines to explore: H10, H11, H14, and H18. 

The organization needs to monitor how it uses the medical supplies to improve the inefficiencies.

Question 3

To break even, the sales minus variable expenses should equal the fixed expenses.

Patients = 15,240

Revenue = $228009

To achieve a target profit of $100,000

Patients = 13,633

Revenue = $2,311,739

Question 4: Summary

A flexible budget is beneficial to organizations in instances where the fixed expenses are outranked by the variable expenses. However, static budgets limit the organization’s ability to modify operations to adapt to the necessary changes (Lennox et al., 2017).

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Therefore, managers prefer flexible budgets that give them the opportunity to modify budgets monthly as necessitated by the operational costs and conditions. In the scenario provided, the management can make some modifications to the modifiable expenses which include staffing and supplies. The organization could also adjust the operational costs in other areas. According to Oyadomari et al. (2018), flexible budgets enable organizations’ managers to adapt to sudden expenses that might arise. Examples are medical supplies and overspent expenses. The flexibility would also help to increase efficiency and reduce wastages.