flexible budgeting and variance analysis case study problesm

Question

1. you are given the following information regarding the nursing department:

Budgeted number of patients : 800

actual number of patients : 750

budgeted hourley worker pay rate: $30

actual hourly worker pay rate $28

budgeted hours of labor per patient 5

actual hours of labor per patient 6

 

- calculate the price or rate, quantity or use, volume, and total variances for this department. Indicate whether each variance is favorable or unfavorable. 

 

Budgeted Volume x Budgeted Quantity x Budgeted Price _______________ x _________________ x ______________ = ___________ Actual Volume x Budgeted Quantity x Budgeted Price _______________ x _________________ x ______________ = ___________ Difference = Volume Variance ___________ F Actual Volume x Budgeted Quantity x Budgeted Price _____________ x _________________ x ______________ = ___________ Actual Volume x Actual Quantity x Budgeted Price _____________ x _________________ x ______________ = ___________ Difference = Quantity or Use Variance ___________ U Actual Volume x Actual Quantity x Budgeted Price _____________ x _______________ x _______________ = ___________ Actual Volume x Actual Quantity x Actual Price _____________ x _______________ x _______________ = ___________ Difference = Price or Rate Variance = ___________ F Total Variance = ___________ U

 

Answer 1

The lay out for solving the problem is confusing. I rather solve the problem this way:

 

800 patients Budgeted for this nursing home. The budgeted labor hours per patient is 5 at rate of $30/hour. Then the Budgeted labor spending is 800x5x30= $120,000 USD.

The Actual spending amounted to 750 patients X 6 hrs spent on each patient X hourly rate of 28 = 126,000 Actual spending. Therefore the actual outcome resulted in unfavorable variance of $6,000 USD in spending.

 

To find out whether this unfavorable variance is from volume ( number of patients) or workers efficiency, we perform the following analysis:

Volume variance= budgeted patients 800- actual patients 750x budgeted labor rate 150= $7,500 Unfavorable

Workers rate variance= $2 FAV(30-28)X750 actual patients= 1,500 Favorable variance

The net number of volume and rate variances must equal the above unfavorable variance of $6,000 USD,

  -7500unfavorable + 1500 Favorable= 6000