cost and explanation of variances

8-40week6.docx

Home >Business & Finance homework help >Accounting homework help >cost and explanation of variances

The emergency room at Rochester General Hospital uses a flexible budget based on patients seen as the measure of activity. The hospital must maintain an adequate staff of attending and on –call physicians at all times so patient activity does not affect physician scheduling .Nurse scheduling varies as volume changes, however. A standard of .5 nurse – hours per patient visit was set. Hourly pay for nurses ranges from $9 to $18 per hour, and the average pay rate in $15 per hour. The hospital considers all materials to supplies, a part of overhead; there are no direct materials. A statistical study showed the costs of supplies and other variable overhead is more closely associated with nurse-hours than with patient visits. The standard for supplies and other variable overhead is $10 per nurse-hour.

The head physician of emergency room unit, Brad Narr, is responsible for control of costs. During October the emergency room unit treated 4,000 patients. The budget actual costs were as follows:

	Budget	Actual	Variance
Patient visits	3,800	4,000	200
Nurse-hours	1,900	2,080	180
Nursing cost	28,500	33,180	4,680
Supplies and other variable overhead	19,000	20,340	1,340
Fixed costs	92,600	92,600	0
Total costs	140,100	146,120	6,020

1. Calculate price and quality variances for nursing costs

2. Calculate spending and efficiency variances for supplies and other variable overhead

3. The hospital’s chief administrator has asked Dr. Narr to explain the variances. Provide possible explanations