Question

The administrator of Appomattox Nursing Home is very aware of needing to keep his cost down since he just negotiated a new arrangement with a large insurance company that will pay him a fixed amount per patient day.  Listed below are budgeted and actual expenses for the previous month.

Actual patient days were 30,000 compared to budgeted patient days of 24,000.

	Budgeted Costs @ 24,000 Patient Days	Budgeted Cost Per Unit	Actual Costs @ 30,000 Patient Days
Pharmacy Costs Variable	$100,000	$4.167	$140,000
Misc Supplies Costs Variable	$56,000	$2.333	$67,500
Fixed Overhead Costs	$708,000	$29.50	$780,000
Total	$864,0000	$36.00	$987,500

a. Determine the total variance associated with the planned and actual expenses.

b. Prepare a flexible budget of expense at 30,000 patient days.

c.  Determine the “Spending Variance” which is defined as Actual costs less costs budgeted at actual volume.

Answer 1

a
	Total Variance
Particulars	Budget	Actual	Total Variance	Favorable/ Unfavorable
(Budget-Actual)
Patient Days	24000	30000
Pharmacy Costs	100,000	140,000	-40,000	Unfavorable
Misc Supplies Costs	56,000	67,500	-11,500	Unfavorable
Fixed Overhead Costs	708,000	780,000	-72,000	Unfavorable
Total	864,000	987,500	-123,500	Unfavorable

(b)
Flexible Budget
Particulars	Remarks	$
Patient Days		30,000
Variable Costs
Pharmacy Costs	(30000 patient days @ 4.167 per patient day)	125,000
Misc Supplies Costs	(30000 patient days @ 2.333 per patient day)	70,000
Fixed Overhead Costs		708,000
Total		903,000

( c )
Spending Variance
Particulars	Remarks	Costs Budgeted at Actual Volume	Actual Costs	Spending Variance	Favorable/ Unfavorable
Patient Days		30,000	30000
Variable Costs
Pharmacy Costs	(30000 patient days @ 4.167 per patient day)	125,000	140000	(15,000)	Unfavorable
Misc Supplies Costs	(30000 patient days @ 2.333 per patient day)	70,000	67500	2,500	Favorable
Fixed Overhead Costs		708,000	780000	(72,000)	Unfavorable
Total		903,000	987,500	(84,500)	Unfavorable