10 Nov Cost System Choices, Budgeting, and Variance Analy
Cost System Choices, Budgeting, and Variance Analyses for Sacred Heart Hospital The purpose of this integrated exercise is to demonstrate how a change in the cost system’s allocation base can result in significantly different reported costs for control purposes (e.g., the cost of various service lines), as well as significantly different budgeted costs for planning purposes (e.g., flexible budgets and variance analyses). The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service linesthe Emergency Room (ER) and the Operating Room (OR). SHH’s current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal $300,000. The table below shows expected patient volume for both lines. Required: 1. Using the current cost system, calculate the hospital-wide rate based on number of patients. 2. Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR. 3. Using the results from question 2, calculate the cost per OR nursing hour under the current cost system. After discussion with several experienced nurses, Jack Bauer (SHH’s accountant) decided that assigning nursing costs to the two service lines based on the number of times that nurses must check patients’ vital signs might more closely match the underlying use of costl
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