You are the manager of a variable hospital department and you just received your monthly
budget results that state your salaries were higher and your supplies were lower than
budgeted. Write a paper (1,000-1,200 words) that explains what factors you should
consider when writing your variance report to your vice president. Your vice president
expects her managers to write detailed variance reports that include all possibilities.
Include the relationships between variance reporting, interpreting variance report results,
and actual results of performance
This paper intends to analyze factors that should be considered in writing a report on
variance. Notably, a report on variance aims at explaining to business executives how the
company is performing through comparison of figures (Devaraj & Patel, 2016). Therefore, a
report on variance should be detailed in order to present all available possibilities. For instance,
the variance may result from differences in activities carried out, prices of supplies used or the
level of efficiency of supplies (Drummond & Vowler, 2012). As a manager in a department of a
variable hospital, many responsibilities are involved.
For instance, it is the duty of the manager to budget and protect profits. Therefore, the
manager is expected to cooperate with other managers within the hospital. Among the other
managers, is the finance manager, whose role is to guard overspending, and ensure making of
increased profits. Therefore, a finance manager is always involved in budgeting (Drummond &
VARIANCE ANALYSIS 2
Vowler, 2012). Additionally, information about financing, departmental concerns, and budget
issues is communicated to all managers within the organization.
Occasionally, a situation may occur where the payroll for salaries is higher compared to
supplies, yet the planned budget was the vice versa. In such a scenario, it is the duty of a budget
manager, to provide feedback, on finances, incomes, and possible variations of budgeted costs.
This paper relies upon a scenario where, salaries were higher, while supplies were lower than
initially stated. Therefore, this paper explores the existing scenario variances and illustrates the
relationship in reporting of variance, explanation of results from reports of variance and
consequences of performance in a hospital.
The scenario above about variance in salaries and the hospital supplies results from the
occurrence of an outbreak of Cholera. In a period of just four months, many Cholera patients
have been hospitalized. Consequently, the hospital thought it necessary to approve overtime.
Overtime is aimed at attending to necessities of the growing patient numbers (Devaraj & Patel,
2016). Notably, working overtime attracts an additional salary for the health workers involved.
Moreover, more supplies are required to be used in treatment services. The situation results in
variance from the budget.
Relationship that exists between Reporting of Variance, Interpretation of Results
from Reporting of Variance and the Consequences of Performance
In reporting of variance, unit factors and price factors are separated. Therefore, reporting
of variance analyzes, the prices incurred to purchase supplies, the time taken by health workers
at work, the cost of direct labor by health workers per hour, and the variance between fixed costs
and variable overhead costs. Theoretically, when the variance is positive, then it shows the
VARIANCE ANALYSIS 3
hospital has spent less money than it had budgeted. However, if the variance is negative, then it
shows the hospital has spent more money than it had budgeted.
For instance, in June the hospital allocated a fixed cost of $20 200 in its budget. It
incurred a variable overhead cost of $1000 while prices for supplies were $9,600. In addition, the
total cost incurred from the cost of direct labor by health workers per hour was $ 9,000. This
shows the hospital had a positive variance of $600. Therefore, the hospital spent less than it had
budgeted. In relation to hospital supplies, a significant difference can be realized, from the
variation in unit volumes of hospital supplies purchased, or difference in the average prices of
the hospital supplies (Devaraj & Patel, 2016).
For instance, in July the hospital spent $580 in the purchase of 20 cartons of syringes, at
$29 per carton of syringes. In August, however, the hospital demanded a supply of 29 cartons of
syringes. There was an additional supply of 9 cartons of syringes hence the supplier lowered the
price per carton to $20. Therefore, the hospital incurred a cost of $580 for 29 cartons of syringes,
which initially would have cost the hospital $841 (Drummond & Vowler, 2012).
From the various changes witnessed over the period, the financial reports have some
variances. After the hospital was faced with an influx of cholera patients, the need for equipment
to attend to the patients went up. Consequently, suppliers of hospital equipment saw the need to
reduce the cost they charge for their supplies, in addition to giving discounts for their supplies.
The move by suppliers was due to the frequent and huge demand from the hospital for
This implies that the books of accounts show a variance in the price of direct materials.
However, the variance is favorable to the hospital. Therefore, this implies that the hospital
VARIANCE ANALYSIS 4
incurred less cost for purchasing the direct materials than the normal standard cost (Ness, 2013).
The actual result from the change is an effect on hospital inventories and the efficiency of
attending to the many Cholera patients, hospitalized in the hospital. Moreover, standard cost for
supplies goes down.
Furthermore, the influx of Cholera patients to the hospital, called for urgent attention, in
order to treat Cholera patients, educate the public, and reduce the spread of Cholera epidemic.
Therefore, in the books of accounts, the hospital experienced a variance in the recording of usage
of direct materials. Notably, for the hospital, direct materials also refer to health attendants.
During the epidemic, the influx of patients made the hospital understaffed. Therefore, it was
necessary to introduce and approve overtime for the available health workers.
As a way of encouraging health workers to work overtime, it was necessary to introduce
an additional salary for health workers who worked past their normal working hours (Ness,
2013). Therefore, in the case of health workers, usage of direct materials for the hospital was
unfavorable. The hospital ended up spending more money than it does in its normal budget limits
to pay health workers for the hours they spent working. The actual result from the change in
offering additional payment to workers is adequacy of health workers, to enhance efficiency in
the provision of treatment services, to the many Cholera patients.
The paper above has analyzed factors to be considered when writing a report on variance.
The case on hand is monthly budget results of a department of a variable hospital, being higher
for salaries and lower for supplies than normal budget allocations. A number of factors have
been addressed by the paper to analyze the cause for the variance. Among the factors analyzed
VARIANCE ANALYSIS 5
are the time which is taken by health workers at work, the cost of direct labor by health workers
per hour, and the prices incurred to purchase supplies.
Devaraj, S. & Patel, P. (2016). Attributing Responsibility. Journal For Healthcare
Quality, 38(1), 52-61.
Drummond, G. & Vowler, S. (2012). Analysis of variance: variably complex. British
Journal Of Pharmacology, 166(3), 801-805.
Ness, D. (2013). Healthcare: Serving the Patient. Healthcare, 1(3-4), 58.