Question: Practice Exercise 181: Variance Analysis Overhead Cost # Therapy Minutes (Activity Level) = Cost per Therapy Minute Actual $920,000 330,000 = (5) $2.79 Budgeted $937,500
Practice Exercise 181: Variance Analysis
|
| Overhead Cost |
| # Therapy Minutes (Activity Level) | = | Cost per Therapy Minute |
| Actual | $920,000 | 330,000 | = | (5) $2.79 | |
| Budgeted | $937,500 | 312,500 | = | $3.00 |
Exhibit 182 presents the Variance Analysis for Hospital Systems Rehab Services for the third quarter. For our practice exercise we will duplicate this report for the fourth quarter. We are able to reformat the information in Exhibit 182 into a worksheet as follows. The fourth quarter assumptions appear below the worksheet.
| Actual Cost |
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| Less: Flexible Budget |
|
| Price Variance (favorable) |
|
|
|
|
| Budgeted Cost |
|
| Less: Flexible Budget |
|
| Quantity Variance (unfavorable) |
|
|
|
|
| Net Variance (unfavorable) |
|
Assumptions
|
| Overhead Cost |
| # Therapy Minutes (Activity Level) | = | Cost per Therapy Minute |
| Actual | (1) $950,000 | (3) 350,000 | = | (5) $2.71 | |
| Budgeted | (2) $930,000 | (4) 310,000 | = | (6) $3.00 |
Set up a worksheet for the fourth quarter like that shown in Exhibit 182 for the third quarter.
Insert the Fourth Quarter Input Data (per assumptions given above) on the worksheet. Complete the Actual Cost, Flexible Budget, and Budgeted Cost sections at the top of the worksheet. Compute the Price Variance and the Quantity Variance in the middle of the worksheet. Indicate whether the Price and the Quantity Variances are favorable or unfavorable for the fourth quarter.
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