Construct a flexible budget for the hospital’s electricity cost

Constructing a flexible overhead budget. – LO 11.3

The chief accountant for Rainbow Community Hospital estimates that the hospital uses $0.60 kilowatt hours of electricity per patient-day, and that the cost of electricity will be $30 per kilowatt hour. The hospital also pays a fixed monthly charge of $15,000 to the electricity supplier to rent emergency back-up electricity generators.

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Construct a flexible budget for the hospital’s electricity cost using each of the following techniques:

A formula flexible budget

A report form flexible budget for 20 000, 30 000 and 40 000 patient-days of activity. List variable and fixed electricity costs separately.


E11.22 Straightforward Calculation of Overhead Variances: Manufacturer. – LO 11.5

The data below relate to Super Fit Ltd, a manufacturer of exercise equipment, for the month of August:

Standard variable overhead rate $18 per machine hour

Standard quantity of machine hours 2 hours per unit of output

Budgeted fixed overhead $180 000

Budgeted output 15 000 units

Actual results for August are as follows:

Actual output 13 500 units

Actual variable overhead $504 900

Actual fixed overhead $183 000

Actual machine time 29 700 machine hours


Calculate the following variances, indicating whether each variance is favourable or unfavourable:

1. Variable overhead spending variance.

2. Variable overhead efficiency variance.

3. Fixed overhead budget variance.

4. Fixed overhead volume variance.

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