Question

NOT SURE WHAT NEEDS TO BE EDITED??? AS STATED IN THE FIRST LINE, THE BOLD IN EACH QUESTION IS WHAT NEEDS TO BE PICKED FROM TO COMPLETE THE SENTENCE. NOT SURE HOW I CAN EXPLAIN THIS MORE CLEAR. THE PICK TO COMPLETE THE QUESTIONS IS BOLD AND SOME HAVE 2 OR 3 OPTIONS TO PICK FROM. I HOPE THIS HELPS.

Discussion of Reported Costs and Variances from the Two Systems -- *****the bold in each question is what needs to be picked from******

9. Consider SHH’s need to control its skyrocketing costs, Jack’s discussion with experienced nurses regarding their use of hospital resources, and the reported costs that you calculated from each cost system. Based on these considerations, which cost system (current or vital signs) should Jack choose? Briefly explain the reasoning behind your choice.

a. Current or vital signs costing system should more accurately allocate costs to service lines because its cost allocation base.

b.   Both, current or vital signs uses only one cost driver and   cost effective.

c. The more accurate vital signs or current system should generate a more accurate estimate of the cost per nursing hour, which affects the budgeting process, because the portion of costs allocated to each service line, ER.

10. What does each of the calculated variances suggest to Jack regarding actions that he should or should not take with respect to investigating and improving each variance? Also, briefly explain why the variances differ between the two cost systems.

a. The overall current system’s OR flexible budget variance ($47,500) is very large and unfavorable or large and favorable or small and favorable or zero, suggesting that the subvariances (price variance and efficiency variance) should be calculated.

b. The current system’s OR price variance ($40,000) is very large and unfavorable, suggesting that the nursing hiring manager negotiated a bad or good price and that nursing hour pay cuts might be necessary.

c. The current system’s OR efficiency variance ($7,500) is moderate and unfavorable or large and favorable or large and unfavorable or zero, suggesting that the operating room manager used too many OR nursing hours for the actual number of surgeries performed.

d. The overall vital signs’ OR flexible budget variance is moderate and unfavorable or large and favorable or large and unfavorable or zero, and suggests that nothing needs to be investigated further.

e. The vital signs’ OR price variance ($10,000) is large and unfavorable or large and favorable or small and favorable large and favorable, suggesting that the nursing hiring manager negotiated a good price.

f. The vital signs’ OR efficiency variance ($10,000) is large and unfavorable or large and favorable or small and favorable or zero, suggesting that the operating room manager used too many OR nursing hours for the actual number of surgeries performed. In addition, it would be unwise had Jack decided to end the variance analysis after seeing that the flexible budget variance was zero. Only after continuing on with the analysis to calculate the price and efficiency variances would Jack realize that the zero flexible budget variance was the result of two large offsetting variances, both of which likely require further investigation and attention.

g. Overall, the two cost systems produce different or same reported costs of the two service lines, ER and OR. The current system assigns nursing costs equally because the ER and OR have the same number of patients. Alternately, the vital-signs system assigns twice or thrice as much of the nursing costs to the OR because the OR requires twice or thrice as many vital signs checks of its patients as the ER does of its patients. In addition, the two systems produce different or same estimates of the cost incurred by the hospital per OR nursing hour. When used as the standard costs in the budgeting process, these different or same reported costs, lead to very different flexible budget variances and price and efficiency variances for the OR service line. Therefore, the managerial accountant should be very careful when constructing a cost system and be sure that the chosen allocation bases are as accurate as possible to match the underlying resource consumption patterns of the business environment. Choosing different cost allocation bases usually will result in differences in reported service line costliness and various variances, which can have ramifications for numerous managers (e.g., purchasing managers responsible for price variances, production managers responsible for efficiency variances, other managers responsible for making service line mix decisions, etc.)

Answer 1

The answers have been listed here in bold for your convenience-

a. vital signs

b. Both

c. vital signs

Answer to question 10-

a. large and unfavorable

b. bad

c. moderate and unfavorable

d. zero

e. small and favorable

f. large and unfavorable

g. The bold letters are the answer in the paragraph below and the entire paragraph has been stated here for your convenience-

Overall, the two cost systems produce different reported costs of the two service lines, ER and OR. The current system assigns nursing costs equally because the ER and OR have the same number of patients. Alternately, the vital-signs system assigns twice as much of the nursing costs to the OR because the OR requires twice as many vital signs checks of its patients as the ER does of its patients. In addition, the two systems produce same estimates of the cost incurred by the hospital per OR nursing hour. When used as the standard costs in the budgeting process, these same reported costs, lead to very different flexible budget variances and price and efficiency variances for the OR service line. Therefore, the managerial accountant should be very careful when constructing a cost system and be sure that the chosen allocation bases are as accurate as possible to match the underlying resource consumption patterns of the business environment. Choosing different cost allocation bases usually will result in differences in reported service line costliness and various variances, which can have ramifications for numerous managers (e.g., purchasing managers responsible for price variances, production managers responsible for efficiency variances, other managers responsible for making service line mix decisions, etc.)