PLEASE ANSWER 10

The Two Cost Systems

Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service linesthe Emergency Room (ER) and the Operating Room (OR). SHH's current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each 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.

Budgeting and Variance Analysis

In an effort to better plan for and control OR costs, SHH management asked Jack to calculate the flexible budget variance (i.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. Given 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 flexible 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

If there is no variance, enter "0" and select "No variance" from the dropdown.

7. For the OR service line, use the information above and the cost per OR nursing hour under the current cost system to calculate the:

a. flexible budget variance. (Hint: Use your answer to Requirement 3 as the standard cost per OR nursing hour for the current cost system.)

A) Total variance = $ 47500 Unfavorable

B) Price variance = $ 40000 Unfavorable

C) Efficiency variance = 7500 Unfavorable

8. 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 cost per OR nursing hour for the vital signs cost system.)

A) Total variance = 0 No Variance

B) Price variance = $ 10000 Favorable

C) Efficiency variance = 10000 Unfavorable

10. What does each of the calculated variances suggest to Jack regarding actions that he should or should not take with respect to investigating and improving each variance? Also, briefly explain why the variances differ between the two cost systems. Answer within the questions below. a. The current system's OR flexible budget is very subvariances (price variance and efficiency variance) should be calculated. suggesting that the Check one 0.5 points large and unfavorable large and favorable small and favorable zero b. The current system's OR price vriance is very large and unfavorable, suggesting that the nursing hiring manager negotiated price (or rate) and that nursing hour pay cuts might be a necessary Check one bad 0.5 points good c. The current system's OR efficiency variance is room manager used too many OR nursing hours for the number of surgeries , suggesting that the operating performed Check one: maderate and unfavorable 0.5 points large and favorable large and unfavorable zero d. The overall vital signs' OR flexible budget variance is nothing needs to be investigated further. Check one: and suggests that 0.5 points maderate and unfavorable large and favorable large and unfavorable zero e. The vital signs' OR price variance is , suggesting that the nursing hiring manager negotiated a good price or rate. Check one 0.5 points large and unfavorable arge and favorable small and favorable zero f. The vital signs' OR efficiency variance is suggesting that the operating room manager used too many OR nursing hours for the actual number of surgeries performed large and unfavorable large and favorable Check one: 0.5 points small and favorable zero 10. What does each of the calculated variances suggest to Jack regarding actions that he should or should not take with respect to investigating and improving each variance? Also, briefly explain why the variances differ between the two cost systems. Answer within the questions below. a. The current system's OR flexible budget is very subvariances (price variance and efficiency variance) should be calculated. suggesting that the Check one 0.5 points large and unfavorable large and favorable small and favorable zero b. The current system's OR price vriance is very large and unfavorable, suggesting that the nursing hiring manager negotiated price (or rate) and that nursing hour pay cuts might be a necessary Check one bad 0.5 points good c. The current system's OR efficiency variance is room manager used too many OR nursing hours for the number of surgeries , suggesting that the operating performed Check one: maderate and unfavorable 0.5 points large and favorable large and unfavorable zero d. The overall vital signs' OR flexible budget variance is nothing needs to be investigated further. Check one: and suggests that 0.5 points maderate and unfavorable large and favorable large and unfavorable zero e. The vital signs' OR price variance is , suggesting that the nursing hiring manager negotiated a good price or rate. Check one 0.5 points large and unfavorable arge and favorable small and favorable zero f. The vital signs' OR efficiency variance is suggesting that the operating room manager used too many OR nursing hours for the actual number of surgeries performed large and unfavorable large and favorable Check one: 0.5 points small and favorable zero