Memorandum Los Reyes Hospital (B) Case Solution & Answer

Memorandum Los Reyes Hospital (B) Case Solution 


Maria Delgado, who is the chief of the medicine department of the Los Reyes Hospital, has been received the memorandum which is circulated all of the department’s chief and to those who have concerns related to the manufacturing of the hospital. In the respected memo, it has been mentioned that the performance of medicine department is running in the deficit while it needs to be in surplus. Currently, the medicine department of the hospital is facing the deficit of more than 125,000 dollars(Young, 2012).

For this purpose, the variances have been calculated which is mentioned in Exhibit 1 of the memorandum. This Exhibit shows that what are the variations in costs has been assumed and in which area the cost exceeding from its standardization value has also recognized in order to control and incorporate the precautionary measures.

Firstly, we need to understand the Exhibit 3 calculations that are presented in the case. The Exhibit 3 is a flexible budget which has been made by using the actual number of cases and their standard costs which will be used in the comparison of the costs that are actually used in four type of cases.

A flexible budget is a budget or financial plan that includes estimated costs and revenues for different levels of production or departments. The changes are due to changes in the volume or level of activity.

In addition to this, it sets standards for measuring the difference between budget estimates and the hospital’s actual performance to achieve audit objectives. In addition, it can be prepared for the entire hospital or for specific departments or units.

It consists of two parts – the first part is the fixed cost and the fixed cost which is the semi-variable cost. The second is the variable cost and the variable cost which is the part of the semi-variable cost. A flexible budget provides cost estimates for different levels of activity. In addition to this, before the budget is established, expenditure should be clearly divided into different categories of fixed, semi-variable and variable costs.

The Importance of a Flexible Budget

  • Flexible budgets are assessed by determining expenditure at different levels of activity. Cost estimates from a flexible budget can help the medicine department to compare the actual costs of a given activity. Therefore, the discrepancies identified can contribute to better planning and control.
  • Flexible budgets help to determine the variability of cost factors at different levels of activity. Therefore, it helps in the analysis of cost differences.
  • Flexible budgets provide assistance in identifying efficiency and operational errors. Therefore, better correction and better control can be performed.
  • Flexible budgets help to determine the price and budget of commercial contracts. Therefore, it is very useful for buying projects.
  • Flexible budgets help to assess the performance of managers and key production staff. Therefore, it improves employee efficiency.
  • Better cost control leads to better profit plans………………….
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