Practice Exercise 17-1 Exhibit 17-2 presents the Variance Analysis for hospital rehab services for the er. For our practice exercise we will duplicate this report for the fourth quart d able to reformat the information in Exhibit 17-2 into a worksheet as follows. The are quarter assumptions appear below the worksheet lows. h Actual Cost Less: Flexible Budget Price Variance (favorable) Budgeted Cost Less: Flexible Budget Quantity Variance (unfavorable) Net Variance (unfavorable Assumptions # Therapy Minutes (Activity Level) Cost per Overhead equals Therapy Minute (5) $2.71 (6) $3.00 divided by Cost (3) 350,000 Actual (1) $950,000 Budgeted (2) $930,000 (4) 310,000 Required 1. Set up a worksheet for the fourth quarter like that shown in Exhibit 17-2 for the third quarter 2. Insert the Fourth Quarter Input Data (per assumptions given above) on the worksheet 3. Complete the “Actual Cost,” “Flexible Budget,” and “Budgeted Cost” top of the worksheet. 4. Compute the Price Variance and the Quantity Variance in the middle of the worksheet. 5. Indicate whether the Price and the Quantity Variances are favorable or unfavorable for the fourth quarter. sections at the Optional Can you compute how the $950,000 actual overhead costs and the $930,000 budgeted over head costs were calculated? ignment Exercise 17-1: Variance Analysis Greenview Hospital operated at 120% of normal capacity in two of its departments during the year. It operated 120% times 20,000 normal capacity direct labor nursing hours in Chapter 17 499 tine services and it operated 120% times 20,000 normal capacity equipment hours in e laboratory. The lab allocates overhead by measuring minutes and hours the equipment is used; thus equipment hours Assumptions: For Routine Services Nursing: 20,000 hours × 120% = 24,000 direct labor nursing hours. · · Budgeted Overhead at 24,000 hours = $42,000 fixed plus $6,000 variable = $48,000 total. ·Actual Overhead at 24,000 hours = $42,000 fixed plus $7,000 variable = $49,000 total. Applied Overhead for 24,000 hours at $2.35 $56,400. For Laboratory: · 20,000 hours × 120% = 24,000 equipment hours. o Budgeted Overhead at 24,000 hours $59,600 fixed plus $11,400 variable $71,000 total. . Actual Overhead at 24,000 hours = $59,600 fixed plus si 1,600 variable-S71.200 total. $82,920. Applied Overhead for 24,000 hours at $3.455 · Required 1. Set up a worksheet for applied overhead costs and volume variance with a column for Routine Services Nursing and a second column for Laboratory 2. Set up a worksheet for actual overhead costs and budget variance with a column for Routine Services Nursing and a second column for Laboratory 3. Set up a worksheet for volume variance and budget variance totaling net variance with a column for Routine Services Nursing and a second column for Laboratory. 4. Insert input data from the Assumptions. 5. Complete computations for all three worksheets.
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Practice Exercise 17-1 Exhibit 17-2 presents the Variance Analysis for hospital rehab services for t