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 3,700 patients but actually treated 4,200 patients. The following additional information for October is available:

	Budget	Actual	Variance
Nurse-hours	1,480	1,596	-116
Nursing costs	$32,560	$32,400	$160
Supplies & other variable costs	$33,300	$29,300	$4,000
Fixed costs	$96,000	$95,400	$600

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

Flexible budget variance is the difference between standard cost based on actual level of activity and the actual cost incurred

Nursing Cost = Standard Cost – Actual Cost

= 1680*22 – 32,400 = 4,560 F

Notes:

Rate per hour = 32560/1480 = $22 per hour

No. Of hours for 4200 patients = 1480*4200/3700

= 1,680

  Supplies and other variable costs = Standard Cost – Actual Cost

= 33,300*4200/3700 – 29,300

= 8,500 F

Fixed costs = Standard – Actual

Fixed costs do not change with the level of activity

Hence, Variance = 96,000-95,400= $600 F