Project: Variance Analysis Project: • Assignment: (200 points)
o This is an individual, graded exercise. Collaboration and sharing of answers among students is not permitted. Students must provide formulas and calculations used to derive answers to the project questions. SHOW ALL WORK.
Use the following data to calculate the variances in problems 1–5.
Standard Cost Profile
Lab Treatment SU #12 Expected Treatments = 1,000
Quantity Resource Variable
Labor 0.80 Supplies 7.00
Quantity Fixed 0.80
0
Unit
Cost
$ 16.00
1.10
Variable Cost
$ 12.80 7.70 $ 20.50
Average Fixed Cost $ 12.80
Average Total Cost
$ 25.60 7.70 33.30
$
0 12.80
Actual Month Cost
Lab Treatment SU #12 Actual Treatments = 1,100
Quantity Resource Used
Unit Total
Cost Cost
$ 17.00 $ 27,200 1.00 7,500 $ 34,700
Labor Supplies
1,600 7,500
Calculate the following variances: SHOW ALL WORK.
1. Efficiency Variance – Labor
2. Efficiency Variance – Supplies
3. Price Variance – Labor
4. Price Variance – Supplies
5. Volume Variance
6. You have been asked to explain the causes for a change in the charges for MS-DRG 445 from 2006 to 2011. Charge profiles are presented below:
Units Provided Charge/Unit 2006 2011 2006 2011
Routine Care 10 7 $200 $400
Special Care 2 1 400 560
Pharmacy 1 1 95 125 95 125 Radiology 9 1 65 585 585 585 CTScan 01300300 0300 Lab 1 1 185 185 185 185
$3,665 $4,555
Compute price and efficiency variances for all departments.
Total Charge 2006 2011 $2,000 $2,800
800 560
Use the following data to calculate the variances in problems 7 –10. SHOW ALL WORK. You have been asked by management to explain the variances in costs under your inpatient
capitated contract. The following data is provided.
Inpatient Costs
Budget
$12,568,500
Actual
$16,618,350
42,000 0.095 0.85
Members
Admission Rate
Case Mix Index
Cost per Case (CMI = 1.0)
42,000 0.070 0.90
$4,750
7. What dollar amount of the total variance is attributed to Enrollment Variance?
8. What dollar effect did the increased admission rate have on cost?
9. The intensity of care delivered dropped from a budgeted case mix of 0.90 to an actual case mix of 0.85. What dollar effect did this have on actual costs?
10. Costs per case increased to $4,900 from a budgeted value of $4,750. This increased actual total costs by what amount?
Use the following data to calculate the variances in problems 11–13.
The following information has been prepared for a home health agency:
Wage Rate per Hour
Fixed Hours
Variable Hours per Relative
Value Unit (RVU) Relative Value Units (RVUs) Total Labor Hours
Labor Costs
Cost per RVU
Budget
$16.00 320
1.0 1,000 1,320
$21,120 $21.12
Actual
$17.00 320
1.1 1,200 1,640
$27,880 $23.23
Budgeted costs at actual volume would be $25,344 ($21.12 × 1,200), and the total variance to be explained is $2,536 Unfavorable ($27,880 – $25,344). Be sure to specify whether the variance is favorable or unfavorable.
11. What is the amount of variance that is attributed to the difference between the budgeted and actual wage rate per hour?
12. What is the amount of variance that is attributed to the change in labor productivity?
$4,900
13. What is the amount of variance that can be attributed to the difference between budgeted and actual volume?
Use the following information for problems 14–16. SHOW ALL WORK.
The administrator of Sunshine 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 PerUnit
Actual Costs @ 30,000 Patient Days
Pharmacy Costs Variable
Misc. Supplies Costs Variable Fixed Overhead Costs
$100,000 $56,000 $708,000 $864,0000
$4.167 $140,000 $2.333 $67,500 $29.50 $780,000 $36.00 $987,500
Total
14. Determine the total variance associated with the planned and actual expenses.
15. Prepare a flexible budget of expense at 30,000 patient days.
16. Determine the “Spending Variance” which is defined as Actual costs less costs budgeted at actual volume.
Use the following information for problems 17–19. SHOW ALL WORK.
A dermatology clinic expects to contract with an HMO for an estimated 80,000 enrollees.
The HMO expects 1 in 4 of its enrolled members to use the dermatology services per month.
At the end of the year, the dermatology clinic’s business manager looked at her monthly figures and saw that the number of enrolled members had increased by 5% over the budgeted amount, and that 1 in 3 of the total HMO members had used the dermatology services per month.
Actual and budgeted statistics are presented below. The total variance is $70,000 and is unfavorable:
Enrollees Usage Rate Visits
Budgeted Actual 80,000 84,000 0.25 0.3333 20,000 28,000
Cost $200,000 $270,000 Cost Per Visit $10.00 $9.643
17. Determine the enrollment variance for the month. 18. Determine the utilization variance for the month. 19. Determine the efficiency variance for the month.
