John Fleming, chief administrator for Valiey View Hospital, is concemed about the costs for tests in the hospitai'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 avaliable: a. Two types of tests are performed in the lab-blood tests and smears. During the past month, 400 blood tests and 2,400 smears were pertormed in the lob. 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 $37,440. 1,400 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, 1,400 hours of labor time were recorded in the lab at a cost of $14,700. d. The lab's variable overhead cost last month totaled $9,800. Valley View Hosplital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs: Plates: Three plates are required per lab test. These plates cost $3.25 each and are disposed of after the test is completed. Labor, Each blood test should require 0.4 hours to complete, and each smear should require 0.20 hours to complete. The average cost of this lab time is $11.40 per hour. Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6.50 per hour. Required: 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 lobor cost in the lab: a. Compute a tabor rate varionce 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-a. Compute the variable overhead rate and efficiency variances 3.b. is there any relation between the variable overheod eficiency variance and the labor efficiency variance? AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February: The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,700 plus $32 per job, and the actual mobile lab operating expenses for February were $8,060. The company expected to work 110 jobs in February, but actually worked 118 jobs. Required: Prepare a flexible budget performance report showing AirQual Test Corporation's revenue and spending variances and activity variances for February. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
