Running head: Variance analysis 3
QUESTION 3
In every business irrespective of the nature of services is rendering, aims at maximization
of revenue while ensuring that the cost is to its maximum level. This if the key factor to profit
maximization. As a fee for service hospital, it is important to minimize the unnecessary
expenses. The purchase of the required medical equipment should be based on the number of the
patients expected. The figure obtained is derived from the previous year data(FY10 ). The value
obtained is used with no additional cost. This is because, from the data that we have, the
purchased product were not exhausted. This covers for the miscellaneous that may arise due to
increases in the number of patients.
For the case of Schumpert Medical Centre, all the product budget lines are over budgeted.
Therefore, there is an unnecessary cost that should be cut down. The budget should be
minimized to avoid loses. In the medical field, some inputs expire after a short period meaning
that they should be bought in small quantities. Thus avoiding such purchases would minimize the
budget. For instance, the product line with huge budget variances such as CIRC, DIGEST,
NEWBORN, OB, ORTHO, OTHER and RESP should be revised and the budget minimized.
Question 4
In capitated hospitals, the service provider will be paid according to the number of services they
are going to offer for an agreed period. The amount of compensation is subject to the sales that a
physician or any other service provider is going to make. It is important to take caution of this
method of operation as the service providers may opt for money rather than the quality of
services. The services that the patient is going to receive, determines the future of the hospital.
Therefore, to ensure maximization of the profit, the cost of the services should be low to attract
