AC100_Lecture7-8_COMPLETE LECTURE SLIDES.pdf

After an initial analysis the general manager decides

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of Health. After an initial analysis, the General Manager decides to further investigate discrepancies between actual and planned costs for direct labour per treatment. 68
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Worked example: Holby City Hospital Given information: Hip replacement operations in the last reporting period: Actual number of operations: 120 (planned: 130) Actual direct labour: 400 hours (doctors) & 900 hours (nurses) The standard direct labour times per one hip replacement operation is 2.5 hours for doctors and 8 hours for nurses . Doctors’ hourly pay was budgeted at £50 . Actual total direct labour costs for doctors was £24,000 . Nurses’ hourly rates were budgeted at £22 . Actual hourly rates were also £22. 69
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Given information Holby City Hospital A level 2 flexible budget variance calculation shows the following results: Calculate and analyse price and efficiency variances for Direct Labour (doctors) and Direct Labour (nurses). Hip replacement Actual results Flexible budget variance Flexible budget Sales vol. variance Static budget Direct labour cost £43,800 £7,680 U £36,120 £3,010 F £39,130 70
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Holby City Hospital: Data on hip replacement Ops Can you complete this grid with the given information? Actual (unit) Actual (total) Budgeted (unit) Budgeted (total) Number of operations ops ops Hours: Doctors hrs hr per op Nurses hrs hr per op Pay: Doctors £ £/hr Nurses £/hr £/hr
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Holby City Hospital: Data on hip replacement Ops Can you complete this grid with the given information? Actual (unit) Actual (total) Budgeted (unit) Budgeted (total) Number of operations 120 ops 130 ops Hours: Doctors hrs per op 400hr 2.5h per op hrs Nurses hrs per op 900hr 8h per op hrs Pay: Doctors £ /hr £24,000 £50/hr £ Nurses £22/hr £ £22/hr £
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Holby City Hospital: Data on hip replacement operations (ops) Actual (unit) Actual (total) Budgeted (unit) Budgeted (total) Number of operations - 120 ops - 130 ops Hours: Doctors = 400hr/120 ops = 3.33hr per op 400hr 2.5hr per op = 2.5 × 130 = 325hr Nurses = 900hr/ 120 ops = 7.5hr per op 900hr 8hr per op = 8 × 130 = 1040hr Pay: Doctors = £24,000 /400hr = £60/hr £24,000 £50/hr = £50/hr × 325hr = £16,250 Nurses £22/hr =£22/hr ×900hr = £19,800 £22/hr = £22/hr×1040hr = £22,880 73
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Price and efficiency variances: Doctors = (£60 - £50) 400hr = £4,000 U nfavourable Efficiency variance = ( Actual quantity of inputs - Standard quantity of inputs for actual output ) × Standard unit price = (400hr 2.5hr × 120 ops) £50 = (400hr 300hr) £50 = £5,000 U nfavourable Price variance = ( Actual unit price - Standard unit price ) × Actual quantity of inputs 74
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Price and efficiency variances: Doctors = £60 × 400hr - £50 × 2.5hr × 120 ops = £24,000 £15,000 = £9,000 U nfavourable ( Total Flexible budget variance) = Price variance + Efficiency variance (individual variances) = £5,000 U + £4,000 U = £9,000 U ( Same as above) Flexible budget variance = Actual unit price × Actual quantity of inputs - Standard unit price × Standard quantity of inputs for actual output Contribution to total flexible budget variance for hip replacement OP 75
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Price and efficiency variances: Doctors 120 130 Cost driver [number of OPs] 24,000 15,000 16,250 (actual) (planned) Labour cost [£] Actual cost = £24,000 Budgeted cost = £16,250 Flexible budget cost = £50 × 2.5 × 120 = £15,000 20,000 Flexible budget Variance = 24,000 15,000 = 9,000U Efficiency Var.
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  • Spring '08
  • A
  • Cost Accounting, Direct material price variance, Sofiya Company

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