Problem 1: Allocate service department costs to each of the three patient care centers using the step-down method.
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COST DRIVERS
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Costs
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Square Feet
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Meals
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Full-time
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Employees
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Cost Centers
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Maintenance
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$150,000
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--
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$2,500
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10
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Dietary
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400,000
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10,000
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--
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15
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Administrative
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600,000
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20,000
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2,500
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10
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Patient Care
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Centers
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Rehabilitation
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600,000
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30,000
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2,500
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20
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OB-Gyn
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800,000
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40,000
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2,500
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30
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ICU Nursing
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2,000,000
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100,000
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30,000
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50
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$4,550,000
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200,000
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40,000
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135
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NOTE: Adjust your (cost drivers) activity statistics in computing the indirect cost allocation percentages as you step down through the cost centers.
Problem 2: Determine Volume, Rate and Total labor variance given the following data:
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Budgeted Rate/Hr.
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=
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$15.50
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Budgeted Labor Costs
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=
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$46,500
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Actual Payroll
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=
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$48,045.50
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Actual labor hours
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=
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3,070
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Problem 3: Total budget (expense) variance consists of two components: variance based on volume and rate (efficiency) factors.
a. For which of these variances should the Department Head be accountable and why?
b. Give examples of how the responsible manager might address an unfavorable labor cost variance?
c. At what level should accountability be placed for unfavorable volume variances? Explain your response.
Problem 4: Contrast zero-based and traditional (incremental) approaches to budgeting by addressing the following questions:
a. What are the alleged advantages of zero-based budgeting approaches?
b. Explain why zero-based budgeting is so rarely implemented in practice, organization-wide given its presumed benefits.
c. Discuss the deficiencies of traditional budgeting systems that can be characterized as both static and incremental.