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 nurse 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 3,600 patients. The following additional information for October is available:

	Budget	Actual	Variance
Nurse-hours	2,220	2,088	132
Nursing cost	$46,620	$31,700	$14,920
Supplies & other variable costs	$40,700	$29,300	$11,400
Fixed costs	$104,700	$90,700	$14,000

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

Ans.	Particulars	Actual	Flexible budet	Flexible budget variance
	Nursing cost	31700	43848	12148	F
	Supplies and other variable costs	29300	39600	10300	F
	Fixed costs	90700	104700	14000	F
	*Calculation of flexible budget:
		Calculation		Flexible budet
	Nursing cost	46620 / 2220 * 2088		43848
	Supplies and other variable costs	40700 / 3700 * 3600		39600
	*Flexible budget is prepared on the basis of actual units, so we need to convert the budgeted amount on the basis
	of actual units. (calculated as above.)
	Nursing cost is computed on the base of nurse-hours and supplies and other costs are computed on no. of patient treated.
	*If actual costs are lower than flexible the variance becomes favorable.
	*Fixed costs in flexible budget are equal to the budgeted fixed costs.