The administrator of Appomattox Nursing Home is very aware of needing to keep hi
ID: 2454737 • Letter: T
Question
The administrator of Appomattox Nursing Home is very aware of needing to keep his cost down since he just negotiated a new arrangement with a large insurance company that will pay him a fixed amount per patient day. Listed below are budgeted and actual expenses for the previous month.
Actual patient days were 30,000 compared to budgeted patient days of 24,000.
Budgeted Costs @ 24,000 Patient Days
Budgeted Cost Per Unit
Actual Costs @ 30,000 Patient Days
Pharmacy Costs Variable
$100,000
$4.167
$140,000
Misc Supplies Costs Variable
$56,000
$2.333
$67,500
Fixed Overhead Costs
$708,000
$29.50
$780,000
Total
$864,0000
$36.00
$987,500
a. Determine the total variance associated with the planned and actual expenses.
b. Prepare a flexible budget of expense at 30,000 patient days.
c. Determine the “Spending Variance” which is defined as Actual costs less costs budgeted at actual volume.
Budgeted Costs @ 24,000 Patient Days
Budgeted Cost Per Unit
Actual Costs @ 30,000 Patient Days
Pharmacy Costs Variable
$100,000
$4.167
$140,000
Misc Supplies Costs Variable
$56,000
$2.333
$67,500
Fixed Overhead Costs
$708,000
$29.50
$780,000
Total
$864,0000
$36.00
$987,500
Explanation / Answer
a) Total variance = ( Actual Cost - Budgeted Cost) = ( 987500 - 864000) = 123500 UF b) Flexible Budget Budgeted Cost @ 24000 paitents days Budgeted cost per unit Budgeted Cost @ 30000 paitents days Pharmacy Cost - Variable 100000 4.167 125010 Misc Supplies Costs Variable 56000 2.333 69990 Fixed Overhead Cost 708000 29.5 708000 Total 864000 36 903000 c) Spending Variance = ( Actual Cost - Budgeted Cost at 30000 paitent days) = (987500 - 903000) = 84500 UF
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