AQ-7

Part A: The Childrens Hospital

The financial controller for the Childrens Hospital estimates that the hospital uses 25 kilowatt-hours of electricity per patient-day, and that the electric rate will be $0.13 per kilowatt-hour. The hospital also pays a fixed monthly charge of $2000 to the electric utility to rent emergency backup electric generators.

Required:

Construct a flexible budget for the hospitals electricity costs using each of the following techniques.

1. Formula flexible-budget.

2. Columnar flexible budget for 30,000, 40,000 and 50,000 patient-days of activity. List variable and fixed electricity costs separately.

Part B: The Supply Company

The Supply Company uses a standard costing system. The firm estimates that it will operate its manufacturing facilities at 600,000 machine hours for the year. The estimate for total budgeted overhead is $1,500,000. The standard variable-overhead rate is estimated to be $2 per machine hour or $6 per unit. The actual data for the year are presented below:

Actual finished units 187,500

Actual machine hours 573,000

Actual variable overhead $1,275,750

Actual fixed overhead $ 294,000

Required:

Compute the following variances. Indicate whether each is favourable or unfavourable, where appropriate.

1. Variable-overhead spending variance.

2. Variable-overhead efficiency variance.

3. Fixed-overhead budget variance.

4. Fixed-overhead volume variance.