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PROBLEM 9-22 Variance Analysis in a Hospital LO9-40, L09-5, L09-69 John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the bospital'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 atrict regulations on amorinta reimbursed for lab testu, payments received from insurance companies and governmental units have not been high enough to cover la costa Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The following information is available: 2. Two types of tests are performed in the lab_blood tests and amears. During the past month, 1,800 blood tests and 2,400 smears were performed in the lab b. Small glasa 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 ahould 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-hour. The average rate for variable overhead is S per hour. 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 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 emplovs only one fourth senior technicians and three-fourths assistants. Would you Page 35 Page 43 Roquired: 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: 4. Compute a labor rate variance and a labor efficiency variance b. In most hospitals, one-half of the worken 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? Explain 3. Compute the variable overhead rate and efficiency variances Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain