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

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 120%  24,000 equipment hours.

   

• Budgeted Overhead 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.

           

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. Set up 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