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 Budgeting and Variance Analysis In an effort to better plan for and control OR costs, SHH management asked Jack to calculate the flexible budget variance (i.e., flexible budget costs - actual costs) for OR nursing costs, including the price variance and efficiency variance. Given that Jack is interested in comparing the reported costs of both systems, he decided to prepare the requested OR variance analysis for both the current cost system and the vital-signs costing system. In addition, Jack chose to use each cost system’s estimate of the cost per OR nursing hour as the standard cost per OR nursing hour. Jack collected the following additional information for use in preparing the flexible budget variance for both systems: 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.
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 |
Budgeting and
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
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