The administrator of Break-a-Leg Hospital is aware of the need to keep his costs down because he just negotiated a new capitated arrangement with a large insurance company. Below are selected planned and actual expenses for the previous month.

Givens:				Budgeted		Actual
	A	Patient days		27,000		26,000
	B	Pharmacy		$120,000		$160,000
	C	Miscellaneous supplies		$66,000		$77,500
	D	Fixed overhead costs		$808,000		$880,000

1. Prepare a flexible expense estimate for variable costs.

. Flexible budget estimate.			Budgeted		Flexible		Actual
	Patient days		27,000				26,000
	Cost per patient day		$6.89				$9.13
	Total cost		$186,000				$237,500

2. Compute the volume variance. 3. Compute the cost variance. 4. Compute the per unit cost variance.

5. Is the unfavorable variance caused by the volume of patients or the cost of services?. Enter VOLUME or COST as your answer.