Can you help me check my answers for this integrative exercise from Cornerstones of Managerial Accounting, chapters 5-10?
Cost System Choices, Budgeting, and Variance Analyses for Sacred Heart Hospital Chapters Objectives Cornerstones 7-2 7-3 10-1 10.3 10-4 10-5 10-6 7-1 7-2 7-4 10 10-1 10-3 10-4 10-5 he purpose of this integrated exercise is to demonstrate how a change in the cost system's allocation base can result in significantly different reported costs for control purposes (e.g., the cost of various service lines), as well as significantly different budgeted costs for planning purposes (e.g, flexible budgets and variance analyses). The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service lines-the Emergency Room (ER) and the Operating Room (OR). SHH's current cost sys tem assigns total nursing costs to the ER and OR based on the number of patients serviced by eadh line. Total hospital annual nursing costs for these two lines are expected to equal $300,000. The table below shows expected patient volume for both lines. Measure ER OR Total Number of patients (ER visits or OR surgeries) 1,000 1,000 2,000 Number of vital signs checks Number of nursing hours 2,000 4,000 6,000 10,000 5,000 15,000 Required: 1. Using the current cost system, calculate the hospital-wide rate based on number of patients. 2. Calculate the amount of nursing costs that the current cost system assigns to the ER and to th OR. Using the results from Requirement 2, calculate the cost per OR nursing hour under the curren cost system. 3. After discussion with several experienced nurses, Jack Bauer (SHH's accountant) decided that assignin nursing costs to the two service lines based on the number of times that nurses must check patien vital signs might more closely match the underlying use of costly hospital resources. Theret t: ore, fo the Connection Cont System Choices, bulgeting, and Variance Analysen for Huered Hert Hopital parative purposes, Jack decided to develop a second cost system on his computer that assigns total nursin comarsing costs to the ER and OR based on the number of times nurses check patients' vital This system is referred to as the " ital-signs costing system." The earlier table also shows data for vital ns checks for lines 4 Using the vital-signs costing system, calculate the hospitol wide rate based on the number of vita signs checks Calculate the amount of nursing costs that the vital-signs coating systom assigns to the ER ard 5. R and to the OR Using the results from Requirement 5, calculate the cost per OR costing system. b. nursing hour under the vital-signs Budgeting and Variance Analysis In an effort to better plan for and control OR costs, SHH management asked Jack to calculate the flexi- ble budget variance G.e., flexible budget costs-actual costs) for OR nursing costs, including the price variance and efficiency variance that make up the flexible budget variance for OR nursing costs, Givern that Jack is interested in comparing the reported costs of both systems, he decided to prepare the requested OR variance analysis for both the current cost system and the vital signs costing system. In addition, Jack chose to use each cost system's estimate of the cost per OR nursing hour as the standard cost per OR nursing hour. Jack collected the following additional information for use in preparing the lexible budget variance for both systems: Actual number of surgeries performed-950 Standard number of nursing hours allowed for each OR surgery 5 Actual number of OR nursing hours used 5,000 Actual OR nursing costs $190,000 For the OR service line, use the information above and the cost per OR nursing hour under the cur- rent cost system to calculate the a. 7. variance. (Hint: Use your answer to Requirement 3 as the standard cost per OR nursing hour for the current cost system.) b. c. efficiency variance For the OR service line, use the information above and the cost per OR nursing hour under the vital signs cost system to calculate the a. flexible budget variance. (Hint: Use your answer to Requirement 6 as the standard variance 8. cost per OR nursing hour for the vital signs cost system.) b. price variance c efficiency variance 2 Consider SHH's need to control its skyrocketing costs, Jack's discussion with experienced nurses and the reported costs that you calculated from each Discussion of Reported Costs and Variances from the Two Systems regarding their use cost system. Based on these considerations, which cost system (current or vital signs) should Jack choose? Briefly explain the reasoning behind your choice hospital 0. What does each of the calculated variances suggest to Jack regarding actions that he should or Also, briefly explain should not take with respect to investigating and improving each variance? why the variances differ between the two cost systems
