The Two Cost Systems:
1. Hospital-Wide Rate (Current System) =
3. Costs Assigned to OR/Number of OR Nursing Hours:
$150,000/5,000 = $30 per OR hour
5. Vital Signs Rate × Number of Vital Signs Checks:
$50 × 2,000 ER vital signs checks = $100,000 assigned to the ER line
6. Costs Assigned to OR/Number of OR Nursing Hours:
$200,000/5,000 = $40 per OR hour
FOR SACRED HEART HOSPITAL
COST SYSTEM CHOICES, BUDGETING, AND VARIANCE ANALYSES
Making the Connection:
INTEGRATIVE EXERCISE (Chapters 5–10)
Total Hospital Nursing Costs
Total Patients
MTC2-1
Making the Connection Integrative Exercise (Chapters 5–10)
Budgeting and Variance Analysis:
7. a. Flexible Budget Variance = Flexible Budget Costs – Actual Costs
=(Number of Actual Surgeries × OR Nursing Hours Allowed per Surgery
× Standard Cost per Surgery) –
A
ctual Cos
t
= (950 × 5 × $30) – $190,000
8. a. Flexible Budget Variance = Flexible Budget Costs –
A
ctual Costs
= (Number of Actual Surgeries × OR Nursing Hours Allowed per Surgery
× Standard Cost per Surgery) –
A
ctual Cos
t
A
A
A
A
A
Making the Connection Integrative Exercise (Chapters 5–10)
9. Although answers will vary, most students likely will choose the vital signs
cost systems for numerous reasons, some of which should be included in the
following discussion. First, if the experienced nurses are correct, then the vital
signs cost system should more accurately allocate costs to service lines
because its cost allocation base (number of times a patient’s vital signs are
10. ●The overall current system’s OR flexible budget variance ($47,500) is very
large and unfavorable, suggesting that the sub-variances (price variance
and efficiency variance) should be calculated.
●The current system’s OR price variance ($40,000) is very large and
MTC2-3
Making the Connection Integrative Exercise (Chapters 5–10)
10. (Continued)
flexible budget variance was zero. Only after continuing on with the
analysis to calculate the price and efficiency variances would Jack realize
that the zero flexible budget variance was the result of two large offsetting
variances, both of which likely require further investigation and attention.
●Overall, the two cost systems produce different reported costs of the two
service lines, ER and OR. The current system assigns nursing costs