The minor injuries clinic in the emergency room department (Accident and Emergency) at a local hospital uses a flexible budget. This is based upon patients seen as a measure of activity. The number of doctors on duty is at any time governed by law and so is not impacted by the volume of patients waiting to be seen. However, nurse scheduling is a direct function of the number of patients in the waiting room; if need be, extra nurses can be called upon quickly from the hospital's nursing bank.

A standard time of 30 minutes (0.5 hours) of nursing time per patient has been set. Hourly pay for the nurses ranges between £7 and £28, and the average pay rate is £12.

The hospital considers all materials consumed to be supplies, as a part of variable overheads; there are no direct materials. A recent statistical study has shown that the cost of supplies and other variable overheads is more closely associated with nursing hours worked than it is with patient visits. A standard rate for supplies and other variable overheads has been set at £10 per nurse hour.

The emergency room manager, Linda Lupin, is responsible for controlling costs, but she is new to her job and does not have a strong accounting background. She has asked for your team's help, as the Hospital Board is concerned about the number of overspends that have recently occurred.

Last month was a typical example. The clinic treated 4,000 patients. The budgeted and actual costs were as follows:

Required
1. Calculate price and quantity variances for nursing costs.
2. Calculate spending and efficiency variances for supplies and other variable overheads.
3. Present the above information as a part of a Business Report to Linda, providing possible explanations for the variances that you have calculated and suggestions as to how she might try to improve her costcontrol.

Transcribed Image Text:

Budget Actual Variance Patient Visits 3,800 4,000 200 1,900 2,080 180 Nurse-hours Nursing cost Supply and other variable OH costs Fixed costs 22,800 33.18010,380 19,000 92,600 92,600 0 20,340 1,340 Total cost 134,400 146,120 11,720