John Fleming, chief administrator for a district hospital, is concerned about costs for tests in the hospitals lab. Mr. Fleming has asked you to evaluate costs in the hospitals lab for the past month. The following information is available: a. Basically, 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 $28,200. This cost is net of a 6% quantity discount. Some 1,500 of these plates were still on hand unused at the end of the month; there no plates on hand at the beginning of the month. c. During the past month, 1,150 hours of labour time were recorded in the lab. The cost of this labour time was $13,800. d. Variable overhead cost last month in the lab for utilities and supplies totaled $7,820. Page 1 of 4 The 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 $2.50 each and are disposed of after the test is completed. Labour: 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 labour-hours. The average rate for variable overhead is $6 per hour. Mr. Fleming would like a complete analysis of the cost of plates, labour, and overhead in the lab or the last month so that he can get to the root of the labs cost problem.

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 labour cost in the lab:

a. Compute a labour rate variance and a labour 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, the 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 spending and efficiency variances.