Practice Exercise 181: Variance Analysis

	Overhead Cost		# Therapy Minutes (Activity Level)	=	Cost per Therapy Minute
Actual	$920,000		330,000	=	(5) $2.79
Budgeted	$937,500		312,500	=	$3.00

Exhibit 182 presents the Variance Analysis for Hospital Systems Rehab Services for the third quarter. For our practice exercise we will duplicate this report for the fourth quarter. We are able to reformat the information in Exhibit 182 into a worksheet as follows. The fourth quarter assumptions appear below the worksheet.

Actual Cost
Less: Flexible Budget
Price Variance (favorable)
Budgeted Cost
Less: Flexible Budget
Quantity Variance (unfavorable)
Net Variance (unfavorable)

Assumptions

	Overhead Cost		# Therapy Minutes (Activity Level)	=	Cost per Therapy Minute
Actual	(1) $950,000		(3) 350,000	=	(5) $2.71
Budgeted	(2) $930,000		(4) 310,000	=	(6) $3.00

Set up a worksheet for the fourth quarter like that shown in Exhibit 182 for the third quarter.

Insert the Fourth Quarter Input Data (per assumptions given above) on the worksheet. Complete the Actual Cost, Flexible Budget, and Budgeted Cost sections at the top of the worksheet. Compute the Price Variance and the Quantity Variance in the middle of the worksheet. Indicate whether the Price and the Quantity Variances are favorable or unfavorable for the fourth quarter.