Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital\'s chi
ID: 2525010 • Letter: F
Question
Fall City 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 Medical assistants Fall City's standard wage rate is $15 per hour, and each assistant is expected to spend 36 minutes with a patient. Assistants totaled 840 hours in helping the 1,610 patients seen, at an average pay rate of $18.50 per hour. Clinic supplies The cost of clinic supplies used is budgeted at $11 per labor hour, and the actual cost of supplies used was $10,250 Lab tests Each patient is anticipated to have four lab tests, at an average budgeted cost of $69 per test. Actual lab tests for June cost $456,435 and averaged 4.5 per patient. Required: 1 Prepare a report that shows budgeted and actual costs for the 1,610 patients served during June. Compute the differences (variances) between these amounts and label them as favorable or unfavorable 2. On the basis of your answer to requirement (1), determine whether Fall City has any significant problems with respect to clinic supplies and lab tests 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.) 3-b. Does it appear that Fall City has any significant problems with the cost of its lab tests? 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?Explanation / Answer
Fall City Hospital
Satement of budgeted and actual cost for 1610 patient during June
Actual Lab Test=Average Test per patient*No. of patient
=1610*4.5
=7245
Variable Overhead Cost Variance
=Budgeted Total Cost-Actual Cost
=469476-482225
=12749 Unfavourable
2)
As we seen that in the table the actual cost of clinical supply and medical assistant is higher than the budgeted cost of clinical supplies and medical assistant, an unfavourable overhead variance show that company does not perform economically, it’s may be due to any controllable reason or may be uncontrollable reason, the problem may be more idle time of labour or due to ineffective management, as we see that labour are paid more than the budgeted overhead rate so here fall city hospital significant problem show that the increase in labour rate.
3)(a)
Variable overhead spending variance
Actual Hour (Standard rate-Actual Rate) or Revised Actual Cost-Actual Cost
Medical Assistant (12600-15540) = 2940 Unfavourable
Clinic Supply (9240-10250) = 1010 Unfavourable
Lab test (499905-456435) =43470 Favourable
Variable overhead efficiency variance
= Standard rate (Standard Hour-Actual Hour) or Std. Cost- Rev Actual Cost
Medical Assistant (14490-15540) =1050 Unfavourable
Clinic Supply (10626-10250) = 376 Favourable
Lab test (444360-499905) =55545 Unfavourable
(3) (b)
Lab test Variances
Price Variance
=Actual Qty (SR-AR) or Rev. Actual Cost-Actual Cost
=499905-456435
=43470 Favourable
Usage Variance
=SR(Std Qty-Actual Qty) or Std. Cost-Revised Actual Cost
=444360-499905
=55545 UnFavourable
Lab Test Cost Variance
=Price Varince+Usage Variance
=43470+(-55545)
=12075 Unfavourable
As we see that the lab test price variance is favourable which is indicate that the purchase department is working efficiently but Usage Variance is negative hence the significant problem is in operation department taking more than budgeted test quantity.
4)
Comparison of total Cost Variance and Variable overhead cost variance
Total Budgeted Cost Variance = 12749 Unfavourable
Overhead Spending Variance
Medical Assistant (12600-15540) = 2940 Unfavourable
Clinic Supply (9240-10250) = 1010 Unfavourable
Lab test (499905-456435) = 43470 Favourable 39520 Favourable
Variable overhead efficiency variance
Medical Assistant (14490-15540) = 1050 Unfavourable
Clinic Supply (10626-10250) = 376 Favourable
Lab test (444360-499905) = 55545 Unfavourable 55179 Unfavourable
Flexible Budget is adjusted with the current fluctuation in the rate and qty. as comparative to budgeted rate and qty so the difference arise in flexible budget is directly related with the individual variances, which is occurred due to inefficient operation or management, or due to any uncontrollable situation.
Particulars Std. Qty (Minute) SR (Per Hour) Std. Cost (Per Patient) Bud Qty. Bud Rate Bud. Cost Actual Qty. AR Actual Cost Actual Qty. SR (Per Hour) Rev. Actual cost Medical Assistant 36 15 9 966 15 14490 840 18.5 15540 840 15 12600 Clinic Supply 36 11 6.6 966 11 10626 840 12.20 10250 840 11 9240 Lab Test 4 69 276 6440 69 444360 7245 63 456435 7245 69 499905 469476 482225 521745Related Questions
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