11. A hospital’s accounting team routinely computes expense variances using a “t
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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 $50,000 compared to a fixed budget of $60,000. In the “three way analysis” the “price” variance was computed to be an unfavorable $5,000 (U); the “efficiency” variance was computed to be a favorable $6,000 (F). Given this information, what was the “volume” variance and be sure to note whether it was favorable (F) or unfavorable (U).
Explanation / Answer
Total variance = standard fixed cost - actual cost
= $10,000 Favorable
Price variance = $5000 U
Efficiency variance = $6000 F
Total $ 1000 F
So volume variance = 9000 F
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