Valley View Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s ch
ID: 2483398 • Letter: V
Question
Valley View Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned about cost control and has asked that performance reports be prepared that compare budgeted and actual amounts for medical assistants, clinic supplies, and lab tests. Past financial studies have shown that the cost of clinic supplies used is driven by the number of medical assistant labor hours worked, whereas lab tests are highly correlated with the number of patients served. The following information is available for June: • Lab tests: Actual lab tests for June cost $335,412 and averaged 3.3 per patient. Each patient is anticipated to have three lab tests, at an average budgeted cost of $70 per test. • Medical assistants: Valley View’s standard wage rate is $15 per hour, and each assistant is expected to spend 30 minutes with a patient. Assistants totaled 850 hours in helping the 1,540 patients seen, at an average pay rate of $16.50 per hour. • Clinic supplies: The cost of clinic supplies used is budgeted at $13 per labor hour, and the actual cost of supplies used was $9,600. Required: 1. Prepare a report that shows budgeted and actual costs for the 1,540 patients served during June. Compute the differences (variances) between these amounts and label them as favorable or unfavorable. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations.) 2. On the basis of your answer to requirement (1), does it appear that Valley View Hospital has any significant problems with respect to clinic supplies and lab tests? No Yes 3-a. Determine the spending and efficiency variances for lab tests. (Hint: In applying the overhead variance formulas, think of the number of tests as the activity level, and think of the cost per test as analogous to the variable overhead rate.) (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations.) 3-b. Does it appear that Valley View Hospital has any significant problems with the cost of its lab tests? Yes No 4. Compare the lab test variance computed in requirement (1), a flexible-budget variance, with the sum of the variances in requirement (3-a). What is the relationship between the flexible budget variance and the total of the individual standard-cost variances? The flexible-budget variance is greater than the sum of the total of the individual standard-cost variances. The flexible-budget variance is less than the total of the individual standard-cost variances. The flexible-budget variance equals the total of the individual standard-cost variances.
Explanation / Answer
1.
Report showing Budgeted & Actual cost for 1540 patients :
Respective calculation as below :
2.
Based on above Valley View Hospital has problems with Lab tests , having unfavourable variance but not with clinic supplies which has positive variance.
3a) Unfavourable variance as average test per patient performed is 3.3 , whereas it should be 3.11
3b)
Yes . Valley View Hospital has any significant problems with the cost of its lab tests both in terms of cost variance and effeciency.
Category Budgeted ($) Actual ($) Variance ($) Effect Lab Tests 323,400.00 335,412.00 (12,012.00) Unfavourable Medical Assistants 11,550.00 14,025.00 (2,475.00) Unfavourable Clinic Supplies 11,050.00 9,600.00 1,450.00 FavourableRelated Questions
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