Integrative Exercise Cost System Choices, Budgeting, and Variance Analyses for Sacred Heart Hospital The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service lines—the Emergency Room (ER) and the Operating Room (OR). SHH's current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal $300,000. The table below shows expected patient volume for both lines. Measure ER OR Total Number of patients (ER visits or OR surgeries) 1,000 1,000 2,000 Number of vital signs checks 2,000 4,000 6,000 Number of nursing hours 10,000 5,000 15,000 Required: 1. Using the current cost system, calculate the hospital-wide rate based on number of patients. $fill in the blank 1 per patient 2. Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR. The nursing cost, assigned to the ER $fill in the blank 2 The nursing cost, assigned to the OR $fill in the blank 3 3. Using the results from Requirement 2, calculate the cost per OR nursing hour under the current cost system. $fill in the blank 4 per OR hour After discussion with several experienced nurses, Jack Bauer (SHH’s accountant) decided that assigning nursing costs to the two service lines based on the number of times that nurses must check patients’ vital signs might more closely match the underlying use of costly hospital resources. Therefore, for comparative purposes, Jack decided to develop a second cost system that assigns total nursing costs to the ER and OR based on the number of times nurses check patients’ vital signs. This system is referred to as the “vital-signs costing system.” The earlier table also shows data for vital signs checks for lines.
Integrative Exercise
Cost System Choices, Budgeting, and Variance Analyses for Sacred Heart Hospital
The Two Cost Systems
Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service lines—the Emergency Room (ER) and the Operating Room (OR). SHH's current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal $300,000. The table below shows expected patient volume for both lines.
| Measure | ER | OR | Total | ||||||
| Number of patients (ER visits or OR surgeries) | 1,000 | 1,000 | 2,000 | ||||||
| Number of vital signs checks | 2,000 | 4,000 | 6,000 | ||||||
| Number of nursing hours | 10,000 | 5,000 | 15,000 |
Required:
1. Using the current cost system, calculate the hospital-wide rate based on number of patients.
$fill in the blank 1 per patient
2. Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR.
| The nursing cost, assigned to the ER | $fill in the blank 2 |
| The nursing cost, assigned to the OR | $fill in the blank 3 |
3. Using the results from Requirement 2, calculate the cost per OR nursing hour under the current cost system.
$fill in the blank 4 per OR hour
After discussion with several experienced nurses, Jack Bauer (SHH’s accountant) decided that assigning nursing costs to the two service lines based on the number of times that nurses must check patients’ vital signs might more closely match the underlying use of costly hospital resources. Therefore, for comparative purposes, Jack decided to develop a second cost system that assigns total nursing costs to the ER and OR based on the number of times nurses check patients’ vital signs. This system is referred to as the “vital-signs costing system.” The earlier table also shows data for vital signs checks for lines.
4. Using the vital-signs costing system, calculate the hospital-wide rate based on the number of vital signs checks.
$fill in the blank 5 per vital signs check
5. Calculate the amount of nursing costs that the vital-signs costing system assigns to the ER and to the OR.
| The vital-signs cost, assigned to the ER | $fill in the blank 6 |
| The vital-signs cost, assigned to the OR | $fill in the blank 7 |
6. Using the results from Requirement 5, calculate the cost per OR nursing hour under the vital-signs costing system.
$fill in the blank 8 per OR hour
Budgeting and Variance Analysis
In an effort to better plan for and control OR costs, SHH management asked Jack to calculate the flexible
Actual number of surgeries performed = 950
Standard number of nursing hours allowed for each OR surgery = 5
Actual number of OR nursing hours used = 5,000
Actual OR nursing costs = $190,000
Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount. If there is no variance, enter "0" and select "No variance" from the dropdown.
7. For the OR service line, use the information above and the cost per OR nursing hour under the current cost system to calculate the
a. flexible budget variance. (Hint: Use your answer to Requirement 3 as the standard cost per OR nursing hour for the current cost system.)
$fill in the blank 9
b. price variance.
$fill in the blank 11
c. efficiency variance.
$fill in the blank 13
8. For the OR service line, use the information above and the cost per OR nursing hour under the vital-signs costing system to calculate the
a. flexible budget variance. (Hint: Use your answer to Requirement 6 as the standard cost per OR nursing hour for the vital signs cost system.)
$fill in the blank 15
b. price variance.
$fill in the blank 17
c. efficiency variance.
$fill in the blank 19
Discussion of Reported Costs and Variances from the Two Systems
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