P10.43 Labour variances: hospital LO 10.5 m, 10.7% Mountain View Hospital has adopted a standard costing system for evaluation and control of nursing labour. Diagnosis related groups (DRGs) are used as the output measure in the standard costing system. A DRG is a classification scheme for treatments, and hospitals are reimbursed by the government based on the number of patients that they treat in each DRG category. Mountain View Hospital has developed standard nursing times for the treatment of each DRG classification, and nursing labour hours are assumed to vary with the number of DRGs treated within a period. The nursing unit on the fourth floor treats patients with four DRG classifications. The unit is staffed with registered nurses (RN), enrolled nurses (EN) and aides. The standard nursing hours and salary rates for each DRG are as follows: DRG classification RN (hours) EN (hours) Aides (hours) 1 6 4 5 2 26 16 10 3 10 5 4 4 12 7 10 Standard hourly rates $24.00 $16.00 $12.00 Page 489 For the month of May, the number of patients and hourly rates for the fourth floor nursing unit are as follows: Actual number of patients DRG 1 250 DRG 2 90 DRG 3 240 DRG 4 140 Total 720 RN EN Aides Actual salary $ 200 490 $70 520 $50 600 Actual hours 8 150 4 300 4 400 Actual hourly rate $ 24.60 $ 16.40 $ 11.50 The accountant for Mountain View Hospital calculated the following standard times for the fourth floor nursing unit for May: Standard hours per patient Total standard hours DRG classification Number of patients RN EN Aides RN EN Aides 1 250 6 4 5 1 500 1 000 1 250 2 90 26 16 10 2 340 1 440 900 3 240 10 5 4 2 400 1 200 960 4 140 12 7 10 1 680 980 1 400 Total 7 920 4 620 4 510 The hospital calculates labour variances for each reporting period by labour classification (RN, EN and aide). The variances are used by nursing supervisors and hospital administrators to evaluate the performance of nursing labour. The variances are calculated as follows: A total nursing labour variance equal to the difference between the total actual nursing cost and the total standard nursing cost. A nursing labour efficiency variance, calculated as the sum of the efficiency variances across the three types of nursing labour. A nursing labour rate variance, calculated as the sum of the rate variances across the three types of nursing labour. Required 1. Calculate the hospital's nursing labour variances for May. 2. Comment on the nursing labour efficiency variance. Does this variance tell the whole story about nursing efficiency