Question

The controller for Rainbow Children’s Hospital, located in Munich, Germany, estimates that the hospital uses 26 kilowatt-hours of electricity per patient-day, and that the electric rate will be 0.14 euro per kilowatt-hour. The hospital also pays a fixed monthly charge of 2,100 euros to the electric utility to rent emergency backup electric generators.

Required:

Construct a flexible budget for the hospital’s electricity costs using each of the following techniques.

1. Formula flexible budget.

Required 1 Required 2 Formula flexible budget. (Round per unit to 2 decimal places.) Total budgeted monthly overhead cost Budgeted variable overhead cost per activity unit Total activity units Bugeted fixed + overhead cost per month x patient days

2.) Columnar flexible budget for 31,000, 41,000 and 51,000 patient-days of activity.

Answer 1

Total budgeted monthly overhead cost	=	Budgeted variable overhead cost per activity unit	X	Total activity units	+	Budgeted fixed overhead cost per month
	=	€                      3.64	X	Patient days	+	€             2,100
Patient days
		31000		41000		51000
Variable electricity cost		€             1,12,840		€       1,49,240		€       1,85,640
Fixed electricity cost		€                   2,100		€             2,100		€             2,100
Total electricity cost		€             1,14,940		€       1,51,340		€       1,87,740
Workings:
Total budgeted monthly overhead cost	=	Budgeted variable overhead cost per activity unit	X	Total activity units	+	Budgeted fixed overhead cost per month
	=	(26 X 0.14) = 3.64	X	Patient days	+	€             2,100
Patient days
		31000		41000		51000
Variable electricity cost		31000*3.64		41000*3.64		51000*3.64
Fixed electricity cost		€                   2,100		€             2,100		€             2,100