John Fleming, chief administrator for Valley View Hospital, is concerned about t

Question

John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the s for lab tests are consistently higher at Valley View than at other hospitals and have complaints. Also, because of strict regulations on amounts reimbursed for lab tests, ental units have not been high enough to cover yments received from insurance companies and governm has asked you to evaluate costs in the hospital's lab for the past month. The following information is available a. Two types of tests are performed in the lab blood tests and smears. During the past month, 1,150 blood tests and 3,700 smears were performed in the lab b.Small glass plates are used in both types of tests. During the past month, the hospital purchased 18.500 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month c. During the past month, 2,700 hours of labor time were recorded in the lab at a cost of $30,105. d. The lab's variable overhead cost last month totaled $22,410 r used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs: Three plates are required per lab test. These plates cost $4.00 each and are disposed of after Each blood test should require 0.8 hours to complete, and each smear should require 0.40 Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $7.80 the test is completed burs to complete. The average cost of this lab time is $11.90 per hour. per hour Required 1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F for favorable, "U" for unfavorable, and "None" for no effect (ie, zero variance).) Materials price variance Type here to search F1 F2 F3 F4 F5 F6 Esc 2 3 4 5 6

Explanation / Answer

1)

Material price variance = (standard price - Actual price) x actual quantity purchased

[4 - (69560/18500)] x 18500 = 4440 F

material quantity variance = (standard quantity - actual quantity) x standard price

SQ = 3 x (1150 + 3700) = 14550 AQ = 18500 - 2700 = 15800

(14550 - 15800) x 4 = 5000 U

2) a

Labour rate variance = (Standard rate - Actual rate) Actual hours

[11.90 - (30105/2700)] x 2700 = 2025 F

labour efficiency variance = (Standard hours - Actual hours) Standard rate

[(1150 x 0.8 + 3700 x 0.4) - 2700] x 11.90 = 3570 U

3) a

Variable overhead rate variance = (standard rate - actual rate) x actual hours

[7.8 - (22410/2700)] x 2700 = 1350 U

variable overhead efficiency variance = (standard hours - actual hours) x standard rate

(2400 - 2700) x 7.80 = 2340 U

Material price variance 4440 F Material quantity variance 5000 U

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