Calculate Rotary Hospital’s total variance between its budget and actual nurse labour expense

Question 4

Rotary
Hospital’s static nursing labour expense budget for the month of November 2012
was $64,800 (1,200 patients * 1.5 nursing labour hours per patient * $36 per
nursing labour hour). During the month of November 2012 Rotary Hospital
actually cared for 1,300 patients. The actual nurse labour expense for the
month was $84,175 and 2,275 nursing hours were actually worked.

Calculate Rotary Hospital’s total variance between
its budget and actual nurse labour expense. How much of this variance was due
to:

a. actual patient numbers being different from the
budget?

b. the hourly cost of nursing services being
different from budget?

c. the number of nursing hours used being different
from budget?

d.
what factor caused the biggest difference between the actual and budgeted
figures?

Question 5

Better Health
Pty. Ltd. is evaluating whether to buy pieces of medical equipment each of
which requires an up-front expenditure of $1.5 million. The projects are
expected to produce the following net cash inflows:

Year Equipment
A Equipment B

1 $500,000 $2,000,000

2 $1,000,000 $1,000,000

3
$2,000,000 $600,000

a.
What is the internal rate of return for each piece of equipment?

b.
What is the payback period for each machine?

c.
What is the net present value of each machine if the cost of capital
is 10 per cent? 5 per cent? 15 per cent?

d.
Should Better Health buy both machines, only one, or none? Explain
your answer.

Question 6

The
Adelaide Private Hospital has 3 patient services departments – Adult Medicine,
Obstetrics and Pediatrics. It also has 3 patient support departments –
administration, Facilities and Finance.

The
revenues of the three patient services departments are:

Adult
medicine $12 million

Obstetrics $6 million

Pediatrics $2 million

The
direct costs of all 6 departments are:

Adult
medicine $6 million

Obstetrics $3.6 million

Pediatrics $1.2 million

Administration $1 million

Facilities $4.4 million

Finance $1.8 million

Direct
costs of the support departments are allocated to patient services departments
using the direct method on the basis of the {0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} of services provided by the
support departments to the patient service departments.

Table
1 below gives the percentages of support provided by the support departments to
both each other and the services departments. For example, 10{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} of admin’s
services are provided to the finance department and 20{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} to obstetrics.

Table
1

a.
Allocate
the support department overheads to the 3 patient service departments on the
basis of the {0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} of services provided.

b.
Calculate
the profit and loss position for each of the patient service departments and
the hospital as a whole.

c.
Should
the hospital consider closing down any or all of the patient service
departments to increase its profitability or reduce its losses? Explain why or
why not.