6.44 payroll variance

Leadership in Information Governance

HIM 4344 - Spring 2021

Assignment #4 - Budgeting: Payroll Variance

Based on Case Study 6.44 Payroll Variance

Domain VI.5: Verify financial management processes.

Instructions:

• Analyze the scenario below.

• Using this document, complete the following:

• Perform necessary calculations – show all budget calculations

• Define the following types of variances:

  1. Favorable: Occurs when the cost to produce something is less than the budgeted cost.

  2. Unfavorable: Where actual costs are greater than the standard or projected costs.

  3. Permanent: Variances caused by changes in the price or quantity of budgeted items are permanent variances.

  4. Temporary: Term used to represent a difference between the budgeted amount and the actual amount of an item that is expected to reverse itself during a subsequent period?

• Identify the types of budget variances that occur in the scenario:

  1. Favorable?

  2. Unfavorable?

  3. Permanent?

  4. Temporary?

• Classify and explain the type of budget variance depicted in this scenario.

• Justify your responses – explain & elaborate!

• Upload this document with your responses to Canvas. You may work in groups.

  Scenario:

  The volume of outpatient surgery and heart-center procedures has increased at your organization. Due to vacations and holidays, a significant backlog has resulted.

  As coding manager, you find it necessary to establish a contract with an outside vendor to reduce that backlog. Those services will be contracted for one month and payment will be at the rate of

  $3.50 per chart. The projected volume for the period is 365 charts per week.

  At the conclusion of the vendor’s service you receive this invoice.

  Week 1: 377 charts coded

  Week 2: 363 charts coded

  Week 3: 358 charts coded

  Week 4: 372 charts coded

  Total: 1,470 charts coded at $3.50 per chart = $5,145.00

  Classify and explain the type of budget variance depicted in this scenario.

• Budget variance looks unfavorable by $35, but it is not. It projected for 1460 charts only @ $3.50 per chart, whereas the coding consultant has coded for 1470 charts at same rate, even if it is slightly more than the agreed number of charts. Though total expense has increased and can be considered unfavorable against budgeted, the same increase in cost contributes to increase in output as well. Therefore, to conclude that this variance is favorable budget variance, considering the insignificance of the variance amount and contribution of the same towards the total output.

• Calculations: ((365 charts*4 weeks) * $3.50) - ((377 charts*363 charts*358 charts*372 charts*) *$3.50) = (1460*$3.50) - (1470* $3.50) = $5110- $5145= $35

Reference

Revoir, R. 2020. Financial Management. Chapter 25 in Health Information Management: Concepts,Principles, and Practice, 6th ed. P. Oachs and A Watters, eds. Chicago: AHIMA