Question

Providence Hospital generates monthly performance reports for each of its departments. The hospital must maintain an adequate staff of attending and on-call physicians at all times, so physician costs are not affected by the number of patient visits. But all other costs do vary with patient activity. Nurse-hours are used as the activity measure for nursing costs, and patient visits are used as the activity measure for the cost of supplies and other variable costs. The head physician of the hospital's emergency room, Yolanda Mortensen, is responsible for control of costs. During October, the emergency room unit expected to treat 4,100 patients but actually treated 3,800 patients. The following additional information for October is available: Actual Variance Nurse-hours 2,204 256 Nursing costs Budget 2,460 $51,660 $45,100 $102,900 Supplies & other variable costs Fixed costs $32,400 $29,400 $95,500 $19,260 $15,700 $7,400 Required Compute the flexible-budget variances for each of the cost categories for October (NOTE: enter favorable variances as positive numbers and unfavorable variances as negative numbers): Nursing costs Supplies and other variable costs Fixed costs

Answer 1

	Variance
Nursing costs	$13,884
Supplies & other variable costs	$12,400
Fixed costs	$7,400

Calculations:

i. Calculation of Unit cost:

	Budgeted cost	/	Base	=	Unit cost
Nursing costs	$51,660	/	2,460 nursing hours	=	$21 per nursing hour
Supplies & other variable costs	$45,100	/	4,100 patient visits	=	$11 per patient visit

ii.Flexible Budget:

FLEXIBLE BUDGET
	Base	x	Unit cost	=	Total
Nursing costs	2,204 nursing hours	x	$21 per nursing hour	=	$46,284
Supplies & other variable costs	3,800 patient visits	x	$11 per patient visit	=	$41,800
Fixed costs					$102,900
Total					$190,984

iii.Calculation of Variances:

	Actual	Variance		Flexible budget
Nursing costs	$32,400	$13,884	Favorable	$46,284
Supplies & other variable costs	$29,400	$12,400	Favorable	$41,800
Fixed costs	$95,500	$7,400	Favorable	$102,900

Actual - Flexible budget = Variance

If Actual costs is less than the Flexible budget costs then it is favorable. Otherwise Unfavorable.