Question: Hospital Costs and Explanation of Variances The emergency room at Rochester General Hospital uses a fl exible budget based on patients seen as the measure of activity. The hospital must maintain an adequate staff of attending and on-call physicians at all times, so patient activity does not affect physician scheduling. Nurse scheduling varies as volume changes, however. A standard of .5 nurse hours per patient visit was set. Hourly pay for nurses ranges from $9 to $18 per hour, and the average pay rate is $15 per hour. The hospital considers all materials to be supplies, a part of overhead; there are no direct materials. A statistical study showed that the cost of supplies and other variable overhead is more closely associated with nurse hours than with patient visits. The standard for supplies and other variable overhead is $10 per nurse hour. The head physician of the emergency room unit, Brad Narr, is responsible for control of costs. During October the emergency room unit treated 4,000 patients. The budget and actual costs were as follows:
1. Calculate price and quantity variances for nursing costs.
2. Calculate spending and efficiency variances for supplies and other variable overhead.
3. The hospital's chief administrator has asked Dr. Narr to explain the variances. Provide possible explanations.