Grinzaid Home Nursing specializes in home nursing services. It bases its overhead on the flexible budget cost function of $33,000 + ($2.40 × labor hours).
Normal volume is based on 12,000 labor hours. Standards call for 2 labor hours per patient visited.
For the current period, the operating results were as follows:
Actual labor hours worked: 11,400
Patient visits: 5,800
Actual variable overhead costs: $28,460
Actual fixed overhead costs: $31,950
How much of the budget variance is due to variable costs?
Group of answer choices
-31,280
-4,948
-3,440
620
The budget variance for Grinzaid Home Nursing can be categorized into two main components: variable costs and fixed costs. To calculate the budget variance due to variable costs, we need to compare the actual variable overhead costs with the expected variable overhead costs based on the flexible budget.
First, let’s calculate the expected variable overhead costs based on the flexible budget cost function provided:
Flexible Budget Variable Overhead Costs = ($2.40 per labor hour) x (Actual labor hours worked)
Flexible Budget Variable Overhead Costs = ($2.40 x 11,400) = $27,360
Now, we can calculate the variance due to variable costs:
Variable Cost Variance = Actual Variable Overhead Costs – Flexible Budget Variable Overhead Costs
Variable Cost Variance = $28,460 – $27,360 = $1,100
Therefore, the budget variance due to variable costs is $1,100.
The options provided do not include this exact amount, but among the given choices, the closest one to $1,100 is $620, which is not accurate. The correct answer should be $1,100.
In summary, the budget variance due to variable costs for Grinzaid Home Nursing is $1,100. This represents the difference between the actual variable overhead costs incurred and the expected variable overhead costs based on the flexible budget formula.
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