Response to the following problem:
A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs. The level of activity in the facility is measured by the number of patients treated in the budget period. For the current year, the budget stands at 6,000 patients and this is expected to be met. For months 1 to 6 of this year (assume 12 months of equal length), 2,700 patients were treated. The actual variable overhead costs incurred during this six-month period are as follows:
|
Expense
|
£
|
|
Staffing
|
59,400
|
|
Power
|
27,000
|
|
Supplies
|
54,000
|
|
Other
|
8,100
|
|
Total
|
148,500
|
The hospital accountant believes that the variable overhead costs will be incurred at the same rate during months 7 to 12 of the year. Fixed overhead costs are budgeted for the whole year as follows:
Expense £
Supervision 120,000
Depreciation/financing 187,200
Other 64,800
Total 372,000
Required:
(a) Present an overheads budget for months 7 to 12 of the year. You should show each expense, but should not separate individual months. What is the total overhead cost for each patient that would be incorporated into any statistics?
(b) The home actually treated 3,800 patients during months 7 to 12, the actual variable overheads were £203,300, and the fixed overheads were £190,000. In summary form, examine how well the home exercised control over its overheads.
(c) Interpret your analysis and point out any limitations or assumptions.