Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Data P10-1: John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab. Charges for lab tests

Data P10-1:
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, payment 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, 1800
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 $28,200. This cost is net of a 6% quantity discount. 1,500 of these plates
were unused at the end of the moth; 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 $13,800.
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 nation wide averages for hospital labs.
Plates: Two plates are required per lab test. These plates cost $2.50 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 $14 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per
hour.
Much of the information above is summarized below:
VALLEY VIEW HOSPITAL
Number of blood tests 1,800
Number of smears 2,400
Number of plates purchased 12,000
Cost of plates $28,200
Quantity discount allowed 6%
Unused plates at month end 1,500
Labor hours 1,150
Cost of labor hours $13,800
Variable overhead costs $7,820
Nationwide averages:
Number of plates per test 2
Cost per plate $2.50
Time for blood test (hours) 0.30
Time for smear (hours) 0.15
Average cost of lab time per hour $14.00
Variable overhead rate per hour $6.00
Required:
1. Compute a materials price variance for the plates purchased last month and a materials quantity
variance for the plates used last month.
2. For labor cost in the lab:
a. Compute a labor rate variance and a labor efficiency variance.
b. In most hospitals, one-half of the workers in the lab are senior technicians and one-half are
assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior
technicians and three-fourths assistants. Would you recommend that this policy be continued?
3. Compute the variable overhead spending and efficiency variances. Is there any relation between
the variable overhead efficiency variance and the labor efficiency variance? Explain.

example

Actual quanity actual price standard quanity standard price actual qty @ actual price Actual qty @std price standard qty @ std proce

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Structured Edp Auditing

Authors: Gabriel Rothberg

1st Edition

0534979319, 978-0534979317

More Books

Students also viewed these Accounting questions

Question

=+ (b) Define a set function v, on , by (11.6) "o (f, g] = A(g-f).

Answered: 1 week ago

Question

9. Describe the characteristics of power.

Answered: 1 week ago