Question

Royal Hospital’s static nursing labour expense budget for the month of November 2012 was $64,800 (1,200 patients * 1.5 nursing labour hours per patient * $36 per nursing labour hour). During the month of November 2012 Rotary Hospital actually cared for 1,300 patients. The actual nurse labour expense for the month was $84,175 and 2,275 nursing hours were actually worked. Calculate Royal Hospital’s total variance between its budget and actual nurse labour expense. How much of this variance was due to: a. actual patient numbers being different from the budget? b. the hourly cost of nursing services being different from budget? c. the number of nursing hours used being different from budget? d. what factor caused the biggest difference between the actual and budgeted figures?

Answer 1

		A	Budgeted Nursing Labor Expense	$64,800	(1200*1.5*36)
		B	Actual Nursing Labor expense	$84,175
		C=B-A	Total Variance	$19,375
			Actual Number of patients	1300
		D	Flexible Budget for 1300 patients	$70,200	(1300*1.5*36)
	a	E=D-A	Variance due toactual patient numbers being different from the budget	$5,400	(70200-64800)
		SH	Standard Nursing Labor hours for 1300 patients	1950	(1.5*1300)
		AH	Actual Nursing Hours	2275
		SR	Standard Hourly Rate	$36.00
		AR	Actual Hourly Rate	$37	(84175/2275)
	b	AH*(AR-SR)	Variance due to difference in hourly Cost	$2,275
	c	SR*(AH-SH)	Variance due to difference in number of hours used	$11,700
			Total Variance =5400+2275+11700=	$19,375
		d	The Factor Causing biggest difference:
			Actual Hours far exceeding Standard Nursing Labor hours
			Standard hour per patient =1.5
			Actual Hours used per patient =(2275/1300)=	1.75
			(1.75/1.5)-1=	16.67%	More Labor hours per patient