Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month 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 a Two types of tests are performed in the lab blood tests and smears During the past month, 1,800 blood tests and 2,400 smears were performed in the lab b Small glass plates are used in both types of tests During the past month, the hospital purchased 12,000 plates at a cost of $56,400 1,500 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, 1,150 hours of labor time were recorded in the lab at a cost of $21,850 d The lab's variable overhead cost last month totaled $7,820 Valley View Hospital has never used standard costs By searching industry literature, however, you have determined the following nationwide averages for hospital labs Plates Two plates are required per lab test These plates cost $5 00 each and are disposed of after the test is completed Labor Each blood test should require 0 3 hours to complete, and each smear should require 0 15 hours to complete The average cost of this lab time is $20 per hour Overhead Overhead cost is based on direct labor hours The average rate for variable overhead is $6 per hour Problem 10 12 (45 minutes) 1 The standard quantity of plates allowed for tests performed during the month would be Blood tests 1,800 Smears 2,400 Total Plates per test X 2 Standard quantity allowed The variance analysis for plates would be Actual Quantity Actual Quantity of of Input, at Input, at Actual Price Standard Price (AQ X AP) (AQ SP) 12,000 plates x $ per plate $56,400 $ Standard Quantity Allowed for Output, at Standard Price (SQ SP) plates x $5 00 per plate $ Materials price variance, $ F 10,500 plates x $5 00 per plate $52,500 Materials quantity Variance, U 12,000 purchased 1,500 unused 10,500 used Alternatively, the variances can be computed using the formulas Materials price variance AQ (AP SP) 12,000 plates ($4 70 per plate $ per plate) $ F $56,400 12,000 plates $4 70 per plate Materials quantity variance SP (AQ SQ) $ per plate (10,500 plates plates) $ U

Question

Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month 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  a  Two types of tests are performed in the lab blood tests and smears  During the past month, 1,800 blood tests and 2,400 smears were performed in the lab  b  Small glass plates are used in both types of tests  During the past month, the hospital purchased 12,000 plates at a cost of $56,400  1,500 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, 1,150 hours of labor time were recorded in the lab at a cost of $21,850  d  The lab's variable overhead cost last month totaled $7,820  Valley View Hospital has never used standard costs  By searching industry literature, however, you have determined the following nationwide averages for hospital labs  Plates  Two plates are required per lab test  These plates cost $5 00 each and are disposed of after the test is completed  Labor  Each blood test should require 0 3 hours to complete, and each smear should require 0 15 hours to complete  The average cost of this lab time is $20 per hour  Overhead  Overhead cost is based on direct labor hours  The average rate for variable overhead is $6 per hour  Problem 10 12 (45 minutes) 1  The standard quantity of plates allowed for tests performed during the month would be  Blood tests 1,800 Smears 2,400 Total Plates per test X 2 Standard quantity allowed The variance analysis for plates would be  Actual Quantity Actual Quantity of of Input, at Input, at Actual Price Standard Price (AQ X AP) (AQ SP) 12,000 plates x $  per plate $56,400  $ Standard Quantity Allowed for Output, at Standard Price (SQ SP) plates x $5 00 per plate   $ Materials price variance, $  F 10,500  plates x $5 00 per plate   $52,500 Materials quantity Variance, U   12,000 purchased 1,500 unused   10,500 used       Alternatively, the variances can be computed using the formulas  Materials price variance   AQ (AP SP) 12,000 plates ($4 70 per plate  $  per plate)   $ F  $56,400   12,000 plates   $4 70 per plate  Materials quantity variance   SP (AQ   SQ) $   per plate (10,500 plates plates)   $ U

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