"Over the past few years, Physical Therapy Associates' labor expenses have increased significantly. You are the CFO, and believe that some of the increase is caused by the performance of two part-time employees at one of the practice's locations that process its Medicare claims paperwork. These two employees work at various times during the week and are paid differently (one has more experience). You ask the office manager to develop a more thorough budget for this labor expense. With input from the two employees, she develops the following budget expectations/standards for the next year: 8,400 claims processed, $12.50 average wage, 15 minutes per patient. At the end of the year, your office manager comes to you with some good news: the labor costs, as compared to the planning/static budget have come in under budget by $1,610. You are glad to hear this, but you would like to understand this news in greater detail. You ask for some additional information, and your office manager provides you with the following: 8,800 patients actually processed; 1,760 hours actually worked. Using this information, come up with a full variance analysis that accounts for the total variance of $1,610. Use the blanks below to enter your answer for each of the listed types of variance, and circle whether each variance is favorable or unfavorable.

Volume variance $____________ Favorable / Unfavorable (circle one)

Price/Rate variance$___________ Favorable / Unfavorable (circle one)

Efficiency variance$____________ Favorable / Unfavorable (circle one)

Total variance $1,610 Favorable"

For the life of me, I have no clue what Price/Rate variance means. I came up with 1,250 Unfavorable for the Volume variance (I think) and $4,250 Favorable (almost positive) for the Efficiency variance, which means the Price/Rate variance would be $1,390 Unfavorable. But how do I get that number? None of my calculations make sense. Logically, I would assume the Price / Rate variance would be favorable, which would make my numbers even more incorrect. Any advice?

Answer rating: 100% (QA)

SOLUTION Budgeted amount Claims processed 8400 Average wage 1250 Hours Claims 0... View the full answer