Problem:
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. The following are selected planned and actual expenses for the previous month.
|
Planned
|
Actual
|
|
Patient days
|
24,000
|
23,000
|
|
Pharmacy
|
$100,000
|
$140,000
|
|
Miscellaneous supplies
|
$56,000
|
$67,500
|
|
Fixed overhead costs
|
$708,000
|
$780,000
|
a. Determine the total variance associated with the planned and actual expenses.
b. Calculate the amount of service-related variance.
c. Prepare a flexible expense estimate for variable costs. Compare budget, flexible budget, and actual (show related volumes).
d. Determine what variance is due to change in volume and what variance is due to change in rates.
e. Determine the volume variance and rate variance based on per unit rates.