Reference no: EM132528026

Question 1: 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 that make up the flexible budget variance for OR nursing costs. 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

If there is no variance, enter "0" and select "No variance" from the dropdown.

Question 2: 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 (one answer?)

b. Price variance (one answer?)

c. Efficiency variance (one answer?)

Question 3: For the OR service line, use the information above and the cost per OR nursing hour under the vital signs cost system to calculate the:

a. Flexible budget variance (one answer?)

b. Price variance (one answer?)

c. Efficiency variance (one answer?)

Discussion of Reported Costs and Variances from the Two Systems

Question 4: Consider SHH's need to control its skyrocketing costs, Jack's discussion with experienced nurses regarding their use of hospital resources, and the reported costs that you calculated from each cost system. Based on these considerations, which cost system (current or vital signs) should Jack choose? Briefly explain the reasoning behind your choice.

Question 5: What does each of the calculated variances suggest to Jack regarding actions that he should or should not take with respect to investigating and improving each variance? Also, briefly explain why the variances differ between the two cost systems.