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John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital'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 relmbursed 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 available: a. Two types of tests are performed in the lab-blood tests and smears. During the past month, 500 blood tests and 2,500 smears were performed in the lab. b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,500 plates at a cost of $45,000. 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, 1,500 hours of labor time were recorded in the lab at a cost of $15,825 d. The lob's variable overhead cost last month totaled $10,650. Valley View Hospital 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 $3,75 each and are disposed of after the test is completed. Labor. Each blood test should require 0.6 hours to complete, and each smear should require 0.30 hours to complete. The average cost of this lab time is $11.50 per hour Overhead: Overhead cost is based on direct labor hours. The average rate for variable overhead is $6.60 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: a. Compute a labor rate variance and a labor efficiency varlance 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. 3-5. Is there any relation between the variable overhead officiency variance and the labor efficiency variance? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Req 2B Red 3A Reg 38 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 favorable, "U" for unfavorable, and "None" for no effect (1.e., zero variance). Input all amounts as positive values.) Materials price variance Materials quantity variance RAG Reg 2A > Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Reg 28 Reg 3A Req 3B For labor cost in the lab, Compute a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance). Input all amounts as positive values.) Labor rate variance Labor officiency variance Complete this question by entering your answers in the tabs below. Req ZA Reg 1 Reg 28 Reg 3A Reg 38 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? Yes No Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Rej Reg 38 Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance). Input all amounts as positive values.) Variable overhead rate variance Variable overhead efficiency variance Complete this question by entering your answers in the tabs below. Rea 1 Reg 2A Reg 28 Req Reg 38 Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Yes No ( Req 3A
