C ezto.mheducation.com/hm.tpx John Fleming, chief administrator for Valley View
ID: 2575034 • Letter: C
Question
C ezto.mheducation.com/hm.tpx John Fleming, chief administrator for Valley View Hospital, is concemed about the costs for tests in the hospital's lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs. Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The information is available: a. Two types of tests are performed in the lab-blood tests and smears. During the past month, 1,200 blood b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 19,000 tests and 3,800 smears were performed in the lab. plates at a cost of $62,510. 2,800 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, 2,800 hours of labor time were recorded in the lab at a cost of $31,360. d. The lab's variable overhead cost last month totaled $23,520. Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs: Plates: Three plates are required per lab test. These plates cost $3.50 each and are disposed of after LaborEach 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 $7.90 the test is completed hours to complete. The average cost of this lab time is $12.00 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 (i.e, zero variance).) Materials price variance Materials quantity variance 2. For labor cost in the lab: a. Compute a labor rate variance and a labor efficiency variance. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, -U" for unfavorable,Explanation / Answer
Blood Test Smears Total Test Done 1200 3800 5000 Direct Materials Plate Required - Standard per test 3 3 3 SQ - Total Standard Plates required 3600 11400 15000 SR per Plate (in $) 3.5 3.5 3.5 AQ - Plates (19,000 - 2,800) 16200 AR (per Plate) 3.29 ($62,510 / 19,000) Direct Labor SH per test 0.8 0.4 SH (Total) 960 1520 2480 SR 12.00 12.00 12.00 AH 2800 AR 11.2 ($31,360 / 2,800 ) Variable Overhead SH 2,480 SR 7.90 AH 2800 AR 8.4 ($23,520 / 2,800 ) Answer 1. Material Price Variance = (SR - AR) X AQ Purchased. Material Price Variance = ($3.50 - $3.29) X 19,000 Plates Material Price Variance = $3,990 (F) Material quantity Variance = (SQ - AQ) X SR Material quantity Variance = (15,000 Plates - 16,200 Plates) X $3.50 Material quantity Variance = $4,200 (U) Answer 2-a. Labor Rate Variance = (SR - AR) X AH Labor Rate Variance = ($12 - $11.20) X 2,800 Hrs Labor Rate Variance = $2,240 (F) Labor Efficiency Variance = (SH - AH) X SR Labor Efficiency Variance = (2,480 - 2,800) X $12 Labor Efficiency Variance = $3,840 (U) Answer 2-b. No, this policy should not be continued. Since, Material Quantity Variance and Labor Efficiency Variance is adverse (unfavorable). Answer 3-a. Variable Overhead Rate Variance = (SR - AR) X AH Variable Overhead Variance = ($7.90 - $8.40) X 2,800 Hrs Variable Overhead Rate Variance = $1,400 (U) Variable Overhead Efficiency Variance = (SH - AH) X SR Variable Overhead Efficiency Variance = (2,480 - 2,800) X $7.90 Variable Overhead Efficiency Variance = $2,528 (U)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.