60. Controlling labor costs. Loomis Convalescent Home has a contract with its full-time nurses…

60.    Controlling labor costs. Loomis Convalescent Home has a contract with its full-time nurses that guarantees a minimum of $2,000 per month to each nurse with at least 12 years of service. One hundred employees currently qualify for coverage. All nurses receive $20 per hour. The direct labor budget for Year 1 anticipates an annual usage of 400,000 hours at $20 per hour, or a total of $8,000,000. Management believes that, of this amount, $200,000 (100 nurses x $2,000) per month (or $2,400,000 for the year) was fixed. Therefore, the company prepared the following formula for any given   month: Budgeted Labor Costs¼ $200,000 þ ($14.00 x Direct Labor Hours Worked). Data on performance for the first three months of Year 1   follow:     January February March Nursing  Hours  Worked………………………………………………………………. 22,000 32,000 42,000 Nursing  Costs  Budgeted……………………………………………………………. $508,000 $648,000 $788,000 Nursing   Costs  Incurred……………………………………………………………… 440,000 640,000 840,000 Variance …………………………………………………………………………………….. 68,000 F 8,000 F 52,000 U   The results, which show favorable variances when hours worked were low and unfavorable variances when hours worked were high, perplex a hospital administrator. This administrator had believed the control over nursing costs was consistently   good. a.    Why did the variances arise? Explain and illustrate, using amounts and diagrams as necessary. b.    Does this budget provide a basis for controlling nursing costs? Explain, indicating changes that management may make to improve control over nursing costs and to facilitate performance evaluation of nurses.  

Don't use plagiarized sources. Get Your Custom Essay on
60. Controlling labor costs. Loomis Convalescent Home has a contract with its full-time nurses…
For as low as $13/Page
Order Essay

Leave a Reply

Your email address will not be published. Required fields are marked *

*

*

*