A medical practice had some unused space which it decided to use to expand the services provided to the local community. It has established a new specialist unit, which offers general health assessments and medical assessments for patients. The general health assessment involves a trained nurse assessing a patient's general health and if, for any reason, a patient requires a medical assessment, the nurse refers them to a doctor.

It is estimated that the standard times are 30 minutes for a general health assessment by the nurse, and an additional 60 minutes for a medical assessment by a doctor. The nurse and the doctor work independently of each other.

The medical practice employs the nurse and the doctor on a subcontract basis. The standard labour rates are as follows:

A total of 2,000 general health assessments and 250 medical assessments are budgeted for the forthcoming period.
Fixed overheads for the specialist unit are budgeted at £20,000 for the forthcoming period. These overheads are to be absorbed on an assessment-hour basis.
Although the medical practice is a non-profit making organisation, it is concerned that costs are controlled and that it offers a high-quality service.
Actual results'.
The following actual results were recorded for the period:
The nurse carried out 2,200 general health assessments and was paid £22,500 for working 1,500 hours.
The doctor carried out 300 medical assessments and was paid £9,800 for working 350 hours.
The fixed overheads amounted to £22,000 Required:

(a) Calculate the standard costs of:
(i) a general health assessment;
(ii) a medical assessment.

(b) Prepare an operating statement for the period using detailed variance analysis to reconcile the standard cost of the new specialist unit with the actual cost of the new specialist unit.
(10 marks)

(c) Referring to your analysis in part (b)\
(i) for each of the variances you have calculated, state one possible reason why it may have occurred;
(ii) discuss the possible difficulties of using standard costing in this type of organisation

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Nurse Doctor 12 per hour 30 per hour