John Fleming, chlef administrator for Valley View Hospital, Is concerned about the costs for tests in the hospltal's lab. Charges for lab

tests are consistently higher at Valley View than other hospitals and have resulted In many complaints. Also, because of strict

regulations on amounts reimbursed for lab tests, payments recelved from Insurance companles and governmental units have not been

high enough to cover lab costs.

Mr$.$ Fleming asked you to evaluate costs in the hospital's lab for the past month. The following information is avallable:

a$.$ Two types of tests are performed in the lab$-$blood tests and smears. During the past month, $1,250$ blood tests and $3,900$ smears

were performed in the lab.

b$.$ Small glass plates are used in both types of tests. During the past month, the hospltal purchased $19,500$ plates at a cost of $$73,320.$

$2,900$ 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, $2,900$ hours of labor time were recorded in the lab at a cost of $$32,625.$

d$.$ The lab's varlable overhead cost last month totaled $$24,650.$

Valley View Hospital has never used standard costs. By searching Industry literature, however, you determined the following

nationwide averages for hospital labs:

Plates: Three plates are required per lab test. These plates cost $$4\mathrm{.}00$ each and are disposed of after the test is completed.

Labor: Each blood test should require $0\mathrm{.}8$ hour to complete, and each smear should require $0\mathrm{.}40$ hour to complete. The average cost

of this lab time is $$12\mathrm{.}10$ per hour.

Overhead: Overhead cost is based on direct labor$-$hours. The average rate for varlable overhead is $$8\mathrm{.}00$ per hour.

Requlred:

Compute a materlals price varlance for the plates purchased last month and a materlals quantity varlance for the plates used last

month.

For labor cost In the lab:

a$.$ Compute a labor rate varlance and a labor efficlency varlance.

b$.$ In most hospitals, one$-$half of the workers in the lab are senlor techniclans and one$-$half are assistants. In an effort to reduce costs,

Valley View Hospital employs only one$-$fourth senlor techniclans and three$-$fourths assistants. Would you recommend this policy be

continued?

$3-$a$.$ Compute the varlable overhead rate and efficlency varlances.

$3-$b$.$ Is there any relation between the varlable overhead efficlency varlance and the labor efficlency varlance?

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