Running Head: Price and Quality Variance for Nursing Cost
Introduction
To effectively plan overhead costs for a product the management must aim to eliminate activities that do not add any value to the product in question. The process of costing is very important in that it supplies information on evaluation and control to various aspects of a business enterprise. Variance measures price and quantity differences that occur in any budgeted and actual prices and quantities. There exist a difference between fixed overhead spending variance and variable overhead spending variance in that the fixed overhead spending variance does not include estimation error while variable spending variable does. Managers can use variance for control, decision implementation, performance evaluation, organizational learning and continuous improvement. Variances analysis can be applied to activity costs to gain insight into why actual activity differ from activity cost in static budget or in the flexible budget
Price variance
Price variance or generally variance is obtained by getting the differences between the expected and the actual result. The analysis of their (actual and expected result) differences is actually variance analysis. Price variance is said to be favorable only if the results expected are far much better than the actual results and the opposite is true for worse results. Price variance can be influenced by;
Poor supervision
Poor employee performance
New inexperienced
The main reason behind it is that the variance analysis of materials, labor, and overhead indicates the difference between original budget and actual sales/amount. It explains that the management should make changes in the budgets in order to diminish the chances of failure (Epstein & Jermakowicz, 2010). Moreover, the company should make changes in its all budgets like production budget, sales budget, manufacturing budget, selling budget and general & administrative. These changes would be helpful to reduce the difference between the actual and projected sales of the firm.
The articles I chose for my annotated bibliography were about healthcare cost and quality. The theme in many of these articles was about healthcare cost and does it affect patients experience. In some settings like hospitals, the cost of quality affects patient experience. The largest component of the U.S. Gross Domestic Product goes to healthcare spending (17% in 2009), and yet the quality is unsatisfactory. It was also interesting to find out that more people die each year in the United States from medical errors than from highway accidents, breast cancer, or AIDS (National Academy of Science's Institute of Medicine, 2002).
Use of the flexible budget shows the budgeted operating income given the actual sales. When you compare the flexible budget to the actual budget you are able to compare the total sales and cost incurred given the same units sold. The sales price variance, which is the actual sales less the flexible budgeted sales, was $14,700 favorable. This means that actual sales were higher than budgeted sales at that usage. This is attributable to the increase in service price from $25 to $26.40. Price variance for material usage was $2,100 over the flexible budget projection. This could be attributed to overuse or waste of materials. As expected, the direct labor price variance was $3,375 lower than the flexible budget amount. This is attributed to the manager’s effective use of labor. Operating expenses were also higher than the flexible budget
Overhead costs need to be accounted for this way we can understand just how much cost goes into producing each unit. There are other cost factors that contribute to the product aside from labor and material. Since the projected and the actual sales volumes do not align Kelly should be concerned with the other
Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.
Another concern identified, is the utilities expense budget for utilities in Year 9 which is $150,000. This amount is identified as a fixed amount and is unrelated to actually production activities and manufacturing efficiency. Considering that production levels and activity fluctuates throughout the year, the budget for utilities should be a variable item. An example; from Year 7 to Year 8, the utilities expenses increase by $15,000 and with this detection, ways to reduce this expense should be investigate. Another concern is a duplicated line item under the Selling, General, and Administrative Budget for Utilities and Utilities and Services. Another issue for concern, Total Variable Cost was reported to be lower; however was not enough for the lack of sales combined with an increase in advertising and transportation which resulted in an overall negative result. The low Net Sales directly impacted the Contribution Margin which decreased by $49,397. Overall, these concerns indicate the need for a flexible budget with variance analysis.
3. Post the file from the same page where you accessed this Assignment, using the
Snavely, T.M. (2016). Data Watch. A Brief Economic Analysis of the Looming Nursing Shortage in the United States. Nursing Economic$, 34(2), 98-100.
Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs
Health care cost and quality is a major topic of conversation in the United States (U.S.). With the cost of health care spiraling out of control, the U.S. is spending an average of $9,086 per person per year on health care (Mahon, 2015)Click and drag to move. Although, the U.S. spending on health care is higher than the other high-income nations across the world, the U.S. has the lowest life expectancy (Mahon, 2015). In the U.S., health care cost and quality are impacted by both public and private agencies. Public agencies are organizations that have an impact on the entire country; while private agencies make an impact on certain communities or states. In this paper, we are going to take a closer look at the roles of these agencies in how
Nursing turnover has been a well-documented issue with regards to retention of competent staff in health care facilities throughout the country (Cartledge, 2001). Turnover is simply defined by Sullivan as the vacating of positions by staff; however, nursing turnover is a phenomenon that must be understood and guarded against (Sullivan, 2013). The effects of turnover can be seen in many aspects of health care including: financial loss, opportunity costs, decreased morale, and shortage of staff. Ultimately turnover becomes an issue where the ability to provide quality care is limited by a lack of experienced nurses (Cartledge, 2001). In fact, the Department of Health recognizes the retention of employees as pivotal to development of increasing ability to provide care for critically ill individuals (Cartledge, 2001).
The impact that nurses can have on a budget is tremendous, from the initial staffing pattern, to the use of supplies, to the satisfaction scores and reimbursement. A budget can be defined as “A detailed financial plan, stated in dollars, for carrying out the activities an organization wants to accomplish within a specific period” (Yoder-Wise, 2015, p. 579). A budget is a set out guidelines and rules to be followed by the staff from the non-licensed ancillary staff to the upper echelon of administration. The nursing staff have a responsibility to the patients, as well as, to the facility. A nurse should never place the bottom-line over the level of patient care, but they should be mindful of the ramifications of their actions in accordance
Overhead costs include rent, office staff, depreciation, and other. Once the flexible budget was complete, variances between the actual and flexible budget could be calculated (Exhibit B). The variance for frame assembly was favorable with actual costs being $82,663 less than in the flexible budget. The variances for wheel and final assembly however were both unfavorable. Wheel assembly had an unfavorable variance of $50,650, while final assembly variance was the highest at an unfavorable variance of $231,200. Taking into account these three aspects of direct cost, direct cost has an unfavorable variance $199,187. Although most overhead costs are fixed, 2/3 of other costs are variable and increase with the increased production. As shown in Exhibit B, overhead variance is unfavorable at $60,000. The direct cost variance and overhead variable together lead to a total unfavorable variance of $259,187.
My experience with Classical Statistical theory is not as extensive as most healthcare organizations. However, classical statistical engages in the practice of one of the most commonly used means to determine which cost variances to investigate is the control chart, (Cleverly, Song, & Cleverly, 2011). Ultimately, the output observations with set limits must fall between set parameters of upper and lower control limits on the chart. Therefore, the process is claimed to be in control. Furthermore, the purpose of the control charts can be established for determining when a “cost variance” should be in control. There are ample ways for classical statistical theory to help in healthcare organizations and the infinite variations. According to (Olatunde, 2009), some examples of common causes of natural variability in health care include a department’s waiting times, re-measurement of a
• Introduction to Polysar • Standard Costing • Variance Analysis for Variable Costs • Fixed Overhead Volume Variance • Transfer Pricing