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 nursing 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 4,200 patients. The following additional information for October is available:

	Budget	Actual	Variance
Nurse-hours	1,480	1,764	-284
Nursing costs	$34,040	$31,300	$2,740
Supplies & other variable costs	$40,700	$27,600	$13,100
Fixed costs	$98,000	$103,900	$-5,900

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 budget	Flexible budget Variance
		Nursing cost	31,300	40572	9272	F
		Suppliers and other variable costs	27,600	46200	18600	F
		Fixed costs	103,900	98000	5900	F
		*Calculation of flexible budget:
			Calculation		Flexible budget
		Nursing Cost	34,040/1480*1764		40572

	Supplies and other variable costs	40,700/3700*4200		46200
	*Flexible budget is prepared an 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.