11. A hospital’s accounting team routinely computes expense variances using a “t
ID: 2485054 • Letter: 1
Question
11. A hospital’s accounting team routinely computes expense variances using a “three way” model using “price”, “efficiency”, and “volume” variances when comparing actual expenses each month to a fixed budget. In February total costs for the supplies to perform its lab tests were $60,000 compared to a fixed budget of $70,000. In the “three way analysis” the “price” variance was computed to be an unfavorable $15,000 (U); the “efficiency” variance was computed to be a favorable $8,000 (F). Given this information, what was the “volume” variance and be sure to note whether it was favorable (F) or unfavorable (U).
Explanation / Answer
As it is uses 3 way volume variance
Total Variance=Price+Efficiency+Volume Variance
Total costs 60,000 Given Fixed budget 70,000 Given Total Variance 10,000 favorable Price Variance 15,000 unfavorable Given Efficiency Variance 8,000 favorable Given Net Result of above both 7,000 unfavorable Total Variance 10,000 favorable As calcualted earlier 2 items varinace 7,000 unfavorable As calcualted Volume variance 17,000 favorableRelated Questions
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