Variance Analysis in Decision Making Paper

Variance Analysis in Decision Making Paper Variance Analysis in Decision Making Paper Having a budget is critical for the financial stability of an organization. Keeping track of how well the organization is actually adhering to the budget, and subsequent identification of why the budget numbers are being missed is equally important. Without this critical “why” piece, it is difficult to make the necessary adjustments to the budget or to organizational behavior that might be promoting overspending. A good budget is built with thoughtful consideration of future costs and revenue. Though your budget is formulated with expected figures in mind, the actual resulting values may vary considerably. This variance–from projected to actual–can be a pleasant surprise or a fiscal nightmare and can make financial decision making difficult. Fortunately, variance analysis can enable management to determine why variance occurred and what can be done to mitigate its effects. Walden University Variance Analysis in Decision Making Paper For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials. To prepare: Review the information in this week’s Learning Resources dealing with variance analysis, how it is calculated, and how it can be used in decision making. View the video Week 8 Application Assignment Tutorial: Variance Analysis, provided in this week’s Learning Resources. Use the Week 8 Application Assignment Template , provided in this week’s Learning Resources, to complete this assignment. Carefully examine the information in each of the scenarios and provide the necessary calculations. Using this information will help you answer the questions. BY DAY 7 Note: For those Assignments in this course that require you to perform calculations you must: Use the Excel spreadsheet template for the Week 8 assignment Show all your calculations and formulas in the spreadsheet. Variance Analysis in Decision Making Paper Answer any questions included with the problems (as text in the Excel spreadsheet). A title and reference page are NOT needed in this assignment. Put your name and assignment at the top of the Excel spreadsheet. Use the Week 8 Application Assignment Template for the Week 8 assignment SALARY VARIANCE SCENARIO For this Assignment run a variance analysis. Based on the information you obtain: assess the results of the analysis, suggest potential causes of the budget variances and an explanation for addressing the situation. Using the following performance data calculate the volume adjusted labor rate variance and volume adjusted efficiency variance. Your Variable Expense Factor is 40% and your Volume Change Factor is 50%. Note: Submit the Excel spreadsheet containing your Salary Variance Scenario calculations to the Assignment submission link usw1_nurs_6211___transcript_week_8.pdf usw1_nurs_6211_week_8_application_assignment_template.xlsx ORDER NOW FOR CUSTOMIZED AND ORIGINAL ESSAY PAPERS NURS 6211: Finance and Economics in Healthcare Delivery Week 8, Program VA Variance Analysis WILLIAM WARD: The reality for most managers is that we never exactly hit the budget. We either over-spend or under-spend. The challenge is to figure out why we missed. And the best way to go about answering that challenge, dealing with that is to do something called volume adjusted variance analysis. Let’s take a look at the formulas that we will use and then we’ll take a look at how we go about using those formulas to figure out why we missed the budget. We’ll have to figure out how much our volume changed by because if our volume goes up or down, theoretically, our spending wants to do that as well. We’ll need to figure out a volume adjustment factor, which is the amount by which we have to change the budget in order to adjust it to the new volume that we’ve achieved. A labor rate variance, which is based on the difference in pay rates times the amount of hours we should have worked. The efficiency variance, which is the difference between the hours we should have worked and did work and the pay rate that we pay for those hours. The final two deal with supply consumption. And, so, there’s a price variance that deals with the difference between what we planned on spending for something and what we actually spent, and the usage variance which gets at the difference between the amount of units that we really consume versus what we should have consumed given the volume that we had. Here is our situation. Our actual volume was 120,000 units of business and our budget was for 150,000 of those same units. We’ve also decided that for our salary component, about 30 percent of that salary component is variable with volume. It could be overtime, it could be agency, could be temporary workers that we use, per diems, float pool, what have you. The volume change factor is a minus 20 percent. We find that out by taking the 120,000 units of volume, subtracting the 150,000 units and that’s a difference of 30,000 units of service. We divide that by the 150,000 units of service and we find out that we’ve got a 20 percent negative volume change. If we multiply the variable expense factor times the volume change factor, 30 percent of a negative 20 percent is a negative 6 percent. So, we’re going to take our budget, the whole budget down by 6 percent. In other words, we’re going to lower that budget by almost $51,000. That then says that given the amount of volume we did and the variability in our labor, we should only have spent © 2012 Laureate Education, Inc. 1 $795,000. We actually spent 826, so we are $31,000 over-spent—unfavorable performance. The value of doing all this is that as managers, one of our principle jobs is to hit the budget. The variance analysis allows us to figure out why we missed it. And it allows us as a manager to get to the point where we’re controlling what goes on. © 2012 Laureate Education, Inc. 2 Name: Assignment: A good budget is built with thoughtful consideration of future costs and revenue. Though your budget is formulated w figures in mind, the actual resulting values may vary considerably. This variance–from projected to actual–can be a pl or a fiscal nightmare and can make financial decision making difficult. Fortunately, variance analysis can enable mana determine why variance occurred and what can be done to mitigate its effects. Using the following performance data, calculate the volume adjusted labor rate variance and volume adjusted efficien Your Variable Expense Factor is 40% and your Volume Change Factor is 50% Salaries Payroll Hours Service Volume Actual 345,000 11,000 75,000 Budget 413,000 9,500 150,000 Actual Budget Salaries Payroll Hours Service Volume 345,000 11,000 75,000 Actual Volume Budget Volume Variable Expense Factor Volume Change Factor Volume Adjustment Factor 75,000 150,000 40% -50% -20% Description Salaries Volume Adjustment Volume Adjusted Salaries Actual 413,000 9,500 150,000 Variance (Unfavorable Budget ) 345,000 413,000 68,000 Paid Hours Volume Adjustment Volume Adjusted Hours Labor Rate Labor Rate Variance Efficiency Variance Total Variance $0.00 $0.00 $0 For this Assignment, run a variance analysis. Based on the information you obtain,assess the results of the analysis, potential causes of the budget variances and an explanation for addressing the situation. Answer: Answer: evenue. Though your budget is formulated with expected ariance–from projected to actual–can be a pleasant surprise tunately, variance analysis can enable management to ects. r rate variance and volume adjusted efficiency variance. 0% . ou obtain,assess the results of the analysis, suggest ng the situation. … Purchase answer to see full attachment Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool’s honor code & terms of service . Get a 10 % discount on an order above $ 100 Use the following coupon code : NURSING10

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