(SOLVED) Mountain View Hospital has adopted a standard costing system for


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Mountain View Hospital has adopted a standard costing system for evaluation and control of nursing labour, Diagnosis Related Groups (DRGs) are used as the output measure in the standard costing system.
A DRG is a classification scheme for treatments, and hospitals are reimbursed by the government based the number of patients that they treat in each DPG category. Mountain View Hospital has developed Standard nursing times for the treatment of each DPG classification, and nursing labour hours are assumed to vary with the number of DPGs treated within a time period.
The nursing unit on the fourth floor treats patients with four DPG classifications. The unit is staffed with nursing sisters (NS), trainee nurses (TN) and aides. The standard nursing hours and salary rates for each DPG are as follows:
For the month of May, the number of patients and hourly rates for the fourth floor nursing unit are as follows:
_______________________________ Actual number of patients
DRG 1 ……………………………………………… 250
DRG 2 ………………………………………………. 90
DRG 3 ……………………………………………… 240
DRG 4 ……………………………………………… 140
Total ………………………………………………… 720
The accountant for Mountain View Hospital calculated the following standard times for the fourth floor nursing unit for May:
The hospital calculates labour variances for each reporting period by labour classification (N5, TN and Aide). The variances are used by nursing supervisors and hospital administrators to evaluate the performance of nursing labour. The variances are calculated as follows:
■ A total nursing labour variance equal to the difference between the total actual nursing cost and the total standard nursing cost.
■ A nursing labour efficiency variance, calculated as the sum of the efficiency variances across the three types of nursing labour.
■ A nursing labour rate variance, calculated as the sum of the rate variances across the three types of nursing labour.
Required:
1. Calculate the hospital’s nursing labour variance for May.
2. Comment on the nursing labour efficiency variance. Does this variance tell the whole story about nursing efficiency?

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