John Fleming, chief administrator for a district hospital, is concerned about costs for tests in the hospitals lab. Fleming has asked you to evaluate costs for the past month. The following information is available:

1. Basically, two types of tests are performed in the labblood tests and smears. During the past month, 3,240 blood tests and 4,320 smears were performed in the lab.
2. Small glass plates are used in both types of tests. During the past month, the hospital purchased 21,600 plates at a cost of $48,600. This cost is net of a 6% quantity discount. 2,160 of these plates were still on hand unused at the end of the month; there were no plates on hand at the beginning of the month.
3. During the past month, 1,950 hours of labour time were recorded in the lab. The cost of this labour time was $23,400.
4. Variable overhead cost last month in the lab for utilities and supplies totalled $12,675.

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 $2.40 each and are disposed of after the test is completed.Labour: Each blood test should require 0.30 hour to complete, and each smear should require 0.15 hour to complete. The average cost of this lab time is $14.00 per hour.Overhead: Overhead cost is based on direct labour-hours. The average rate for variable overhead is $5.40 per hour.

Fleming would like a complete analysis of the cost of plates, labour, and overhead in the lab for 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. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) 2. For labour cost in the lab: a. Compute a labour rate variance and a labour efficiency variance. (Do not round intermediate calculations. Round "Efficiency variance" answer to 2 decimal places. Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) b. This part of the question is not part of your Connect assignment. 3-a. Compute the variable overhead spending and efficiency variances. (Do not round intermediate calculations. Round "Efficiency variance" answer to 2 decimal places. Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance.).) 3-b. Is there any relationship between the variable overhead efficiency variance and the labour efficiency variance? multiple choice

Yes

No

Next:

Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The standard cost for one pool is as follows:

Standard Quantity or HoursStandard Price or RateStandard CostDirect materials1.40kilograms$5.00per kilogram$7.00 Direct labour1.10hours$5.00per hour 5.50 Variable manufacturing overhead0.50machine-hours$3.00per machine-hour 1.50 Total standard cost $14.00

The plant has been experiencing problems for some time, as is shown by its June income statement when it made and sold 14,000 pools; the normal volume is 14,150 pools per month. Fixed costs are allocated using machine-hours.

Flexible BudgetedActualSales (14,000 pools)$450,000$450,000Less: Variable expenses: Variable cost of goods sold* 196,000 202,180Variable selling expenses 18,700 18,700Total variable expenses 214,700 220,880Contribution margin 235,300 229,120Less: Fixed expenses: Manufacturing overhead 121,000 121,000Selling and administrative 78,400 78,400Total fixed expenses 199,400 199,400Net income$35,900$29,720

*Contains direct materials, direct labour, and variable manufacturing overhead.

Janet Dunn, the general manager of the Westwood Plant, wants to get things under control. She needs information about the operations in June since the income statement signalled that the problem could be due to the variable cost of goods sold. Dunn learns the following about operations and costs in June:

1. 30,700 kilograms of materials were purchased at a cost of $4.00 per kilogram.
2. 24,800 kilograms of materials were used in production. (Finished goods and work-in-process inventories are insignificant and can be ignored.)
3. 15,000 direct labour-hours were worked at a cost of $6 per hour.
4. Variable manufacturing overhead cost totalling $18,880 for the month was incurred. A total of 5,900 machine-hours was recorded.

It is the companys policy to close all variances to cost of goods sold on a monthly basis.

Required:

1. Compute the following variances for June:

a. Direct materials price and quantity variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

b. Direct labour rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

c. Variable overhead spending and efficiency variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2-a. Summarize the variances you computed in part (1) by showing the net overall favourable or unfavourable variance for the month. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)

2-b. What impact did this figure have on the company's income statement? 3. Pick out the two most significant variances you computed in part (1). (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

check all that apply

• Materials price varianceunanswered
• Materials quantity varianceunanswered
• Labour rate varianceunanswered
• Variable overhead efficiency varianceunanswered
• Variable overhead spending varianceunanswered
• Labour efficiency varianceunanswered

4. Compute the fixed overhead cost variances. (Indicate the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).)