Problem #2. (20 Points)

Harbor General Hospital uses a flexible 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, Liz Sanchez, is responsible for control of costs.

During October the hospital treated 4,000 patients. The budget and actual costs were

as follows:

Budget Actual Variance

Patient visits 3,800 4,000 200

Nurse hours 1,900 2,080 180

Nursing cost $ 28,500 $ 33,180 $4,680

Supplies, other variable overhead 19,000 20,340 1,340

Fixed costs 92,600 92,600 0

Total cost $140,100 $146,120 $6,020

1. Calculate price and quantity variances for nursing costs.

2. Calculate spending and efficiency variances for supplies and other variable overhead.

3. The hospitals chief administrator has asked Dr. Sanchez to explain the variances. Provide possible explanations.

Show ALL of your calculations.