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 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 following information is available:

Two types of tests are performed in the lab—blood tests and smears. During the past month, 350 blood tests and 2,300 smears were performed in the lab.

Small glass plates are used in both types of tests. During the past month, the hospital purchased 11,500 plates at a cost of $27,025. 1,300 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.

During the past month, 1,300 hours of labor time were recorded in the lab at a cost of $13,585.

Three plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed.

Each blood test should require 0.6 hours to complete, and each smear should require 0.30 hours to complete. The average cost of this lab time is $11.30 per hour.

Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6.40 per hour

Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month. (Round your answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Compute a labor rate variance and a labor efficiency variance. (Round your answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Compute a labor rate variance and a labor efficiency variance. (Round your answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

John Fleming, chief administrator for Valley View Hospital, is concerned 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.

Explanation / Answer

Answer 1. Material Price Variance = (SR - AR) X AQ Material Price Variance = (2.50 - 2.35) X 10200 Material Price Variance = $1530 (F) Material quantity Variance = (SQ - AQ) X SR Material quantity Variance = (7950 - 10200) X 2.50 Material quantity Variance = $5625 (U) Answer 2. Labour Rate Variance = (SR - AR) X AH Labour Rate Variance = (11.30 - 10.45) X 1300 Labour Rate Variance = $1105 (F) Labour Efficiency Variance = (SH - AH) X SR Labour Efficiency Variance = (900 - 1300) X 11.30 Labour Efficiency Variance = $4520 (U)

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