Cost Variance Analysis for Monero Medical Center

This assignment delves into a cost variance analysis for Monero Medical Center, examining discrepancies between projected and actual financial performance. It highlights key variances in revenue and expenses, leading to an unexpected positive net income. The analysis then proposes strategies to align actual results with budget, emphasizing the importance of realistic goal-setting, performance measurement, and benchmarking for improved budget management.

Running head: RATIO AND BUDGET MANAGEMENT ANALYSIS
Ratio and Budget Management Analysis of Monero Medical Centre
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1RATIO AND BUDGET MANAGEMENT ANALYSIS
Table of Contents
1. Computation of Ratios.....................................................................................................2
2. Summarizing Indication of Each Ratio............................................................................2
3. Organizational Performance Based on Industry Standards.............................................3
4. Computation of Cost Variances.......................................................................................3
5. Comparison of Cost Variance Computations with Variance Report...............................4
6. Strategies for Aligning Actual Results to Budget............................................................4
7. Benchmarking Improves Budget Management...............................................................5
References............................................................................................................................6

2RATIO AND BUDGET MANAGEMENT ANALYSIS
1. Computation of Ratios
In order to analyze the financial performance of Monero Medical Center, ratios are
calculated based on the balance sheet and income statement of the company. For analyzing the
liquidity and profitability position of the company, current ratio, quick ratio, equity ratio and
profit margin ratios are evaluated (Archibald-Seiffer et al., 2015). From such analysis it is
gathered that current ratio of Monero Medical Center has decreased in the year 2013. Moreover,
quick ratio has also decreased in 2013 with equity ratio and profit margin ratio remaining
constant.
Ratios 2012 2013
Current Ratio 3 1
Quick Ratio 14.5174224 4.598269
Equity Ratio 1 1
Profit Margin Ratio 0 0
2. Summarizing Indication of Each Ratio
 Current Ratio- Decrease in current ratio of the company indicates that the company is
failing to address its debt obligations and is incapable to maintain its liquidity (Baños-
Caballero, García-Teruel & Martínez-Solano, 2014).
 Quick Ratio- Decrease in quick ratio indicates that the company is not capable to pay its
current liabilities in a better manner for maintaining business liquidity.
 Equity Ratio- This ratio remains constant that indicates the company’s assets are
financed by its investors and a constant amount of assets are finance by debt (Delen,
Kuzey & Uyar, 2013).

3RATIO AND BUDGET MANAGEMENT ANALYSIS
 Profit Margin Ratio- This ratio remains 0 that indicates the company is not attaining
enough net sales and decreasing its expenses that could have increased its net income.
3. Organizational Performance Based on Industry Standards
Performance of Monero Medical Center is also analyzed based on comparing the
company’s ratios with the industry standard ratios (Farkas, Kersting & Stephens, 2016). From
such analysis it is gathered that current ratio of the company is observed to be 1 in the year 2013
in comparison to the industry standard that is 2.78. Quick ratio of the company is observed to be
4 in the year 2013 in comparison to the industry standard that is 1.09. Equity ratio of the
company is observed to be 1 in the year 2013 in comparison to the industry standard that is 2.09.
Profit margin ratio is observed to be 0 in the year 2013 in comparison to the industry standard
that is 1.7 which indicates that the company is not able to make enough profits. Quick ratio
comparison indicates that the company is able to pay off its debt obligations and maintain its
liquidity in a better manner.
4. Computation of Cost Variances
Cost variance for Monero Medical Center is computed in order to analyze the variance in
the actual and projected operating budget for the year 2013. Cost variance is observed in total
revenues, total expenses and the net income of the company. Cost variance is computed through
deducting actual operating budget from projected operating budget (Lee & Renner, 2016).

4RATIO AND BUDGET MANAGEMENT ANALYSIS
Total of
Actual
Operating
Budget (2013)
Projected
Operating
Budget (2013)
Cost
Variance
Total
Revenues
925,963 451,030 474,933
Total
Expenses
924,586 455,749 468,837
Net Income 1,256 -4416 -3,160
5. Comparison of Cost Variance Computations with Variance Report
Cost variance computations of Monero Medical Center are compared with the operating
budget variance report for the year 2013. Such computations facilitated in evaluating the cost
incurred actually and the budgeted amount of cost that was estimated to be incurred. Such
variances were analyzed to track expense line items along with evaluating variances in revenue
and net income earned by the company. From such computations it has been observed that cost
variance in total revenue is observed to be 474,933, cost variance in total expenses is 468,837
and variances in net income are 3,160. Such variances indicate that the company’s actual revenue
is more than the projected. Total actual expenses of the company are also observed to be more
than projected. Moreover, net income of the company was projected to be negative but actual net
income has turned out to high and positive (Vogel, 2014).

5RATIO AND BUDGET MANAGEMENT ANALYSIS
6. Strategies for Aligning Actual Results to Budget
After analyzing the cost variances several strategies can be developed in order to along
actual with the budgeted results. The company must develop strategies in ensuring the ways in
which financial forecasting and actual results with implemented strategies can be aligned (Ming,
2017). Measuring performance indicators is another strategy that can facilitate Monero Medical
Center in evaluating failure or success of the projected data. Another strategy can be setting
realistic goals along with making projections in consideration to competitive and economic
environment.
7. Benchmarking Improves Budget Management
Benchmarking can be easy measurement through which through which a company can be able to
measure its budgeted results with asset management. This kind of high level benchmarking
focuses an organization on attaining targets along with centering on the areas of potential
operating weaknesses. Benchmarks are established on attainable budget (Matthew, Fada &
Ukonu, 2016). After setting a particular benchmark, a company must ensure that the budgets are
based on the strategies through which operating goals can be attained. Budgets and benchmarks
also serve as a function of internal audit in order to highlight accounting issues like timing issues
for costs and revenues.

6RATIO AND BUDGET MANAGEMENT ANALYSIS
References
Archibald-Seiffer, N., Jacobs Jr, J. C., Saad, C., Jevsevar, D. S., & Shea, K. G. (2015). Review
of anterior cruciate ligament reconstruction cost variance within a regional health care
system. The American journal of sports medicine, 43(6), 1408-1412.
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), 332-338.
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.
Farkas, M., Kersting, L., & Stephens, W. (2016). Modern Watch Company: An instructional
resource for presenting and learning actual, normal, and standard costing systems, and
variable and fixed overhead variance analysis. Journal of Accounting Education, 35, 56-
68.
Lee, M. T., & Renner, C. J. (2016). Global Dental Equipment: How Variance Analysis Can Help
a Startup Business Survive Growing Pains. International Research Journal of Applied
Finance.
Matthew, D. A. A., Fada, A., & Ukonu, I. C. (2016). Role Of Financial Ratio Analysis In
Assessing Business Performance In The Hospitality And Tourism
Operations. Development, 4(4).

7RATIO AND BUDGET MANAGEMENT ANALYSIS
Ming, S. (2017, January). Design and Realization of Product Cost Variance Analysis System.
In Measuring Technology and Mechatronics Automation (ICMTMA), 2017 9th
International Conference on (pp. 57-59). IEEE.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.