Variance Analysis Greenview Hospital operated at 120% of normal capacity

Assignment Exercise 17-1: Variance Analysis Greenview  Hospital operated at 120% of normal capacity in two of its departments during the year. It operated 120% times 20,000 normal capacity direct labor nursing hours in routine services and it operated 120% times 20,000 normal capacity equipment hours in the laboratory. The lab allocates overhead by measuring minutes and hours the equipment is used; thus equipment hours. Assumptions: For Routine Services Nursing: • 20,000 hours X 120% = 24,000 direct labor nursing hours.• Budgeted Overhead at 24,000 hours = $42,000 fixed plus $6,000 variable = $48,000 total. • Actual Overhead at 24,000 hours =$42,000 fixed plus $7,000 variable = $49,000 total. • Applied Overhead for 24,000 hours at $2.35 = $56,400. For Laboratory: •20,000 hours X 120% = 24,000 equipment hours. • Budgeted Over head at 24,000 hours = $59,600 fixed plus $11,400 variable = $71,000 total. • Actual Overhead at 24,000 hours = $59,600 fixed plus $11,600 variable = $71,200 total. • Applied Overhead for 24,000 hours at $3.455 = $82,920. Required 1. Set up a worksheet for applied overhead costs and volume variance with a column for Routine Services Nursing and a second column for Laboratory. 2. Setup a worksheet for actual overhead costs and budget variance with a column for Routine Services Nursing and a second column for Laboratory. 3. Set up a worksheet for volume variance and budget variance totaling net variance with a column for Routine Services Nursing and a second column for Laboratory. 4. Insert input data from Assumptions. 5. Complete computations for all three worksheets. Example 17B Review the "Sensitivity Analysis Overview" section and Figure 17-5in Chapter 17. Assignment Exercise 17-2: Three-Level Revenue Forecast Three eye-ear-nose-and-throat physicians decide to hire an experienced audiologist in order to add a new service line to their practice.*They ask the practice manager to prepare a three-level volume forecast as a first step in their decision-making. Assumptions: for the base level (most likely) revenue forecast, assume $200 per procedure times four procedures per day times five days equals 20 procedures per week times 50 weeks per year equals 1,000 potential procedures per year. For the best case revenue forecast, assume an increase in volume of one procedure per day average, for an annual increase of 250 procedures (5 days per week times 50 weeks equals 250). (The best case is if the practice gains a particular managed care contract.) For the worst case revenue forecast, assume a decrease in volume of two procedures per day average, for an annual decrease of 500 procedures. (The worst case is if the practice loses a major payer.)

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