Problem 10-12 Variance Analysis in a Hospital [LO10-1, LO10-2, LO10.3] 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 omounts 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 available a. 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 gloss plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at o cost of $56,400 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, 1,150 hours of labor time were recorded in the lab at a cost of $21,850 d. The lab's variable overhead cost last month totaled $7,820 Valley View 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 $5.00 each and are disposed of after the test is completed Labor Each blood test should require 0.3 hours to complete, and each smear should require 015 hours to complete. The average cost of this lab time is $20 per hour Overhead Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per hour Requireed 1. Compute a materials price variance for the plates purchased last month and o materials quantity variance for the plotes used last month 2. For labor cost in the lab: a Compute a lebor rate veriance and a labor efficiency variance b. In most hospitels, one-half of the workers in the lob are senior technicians and one-half are ossistants. In an effort to reduce costs Valley View Hospital employs only one-fourth senior techniciens and three-fourths assistants. Would you recommend that this policy be continued? 3-a. Compute the variable overhead rate and efficiency varioances 3-b. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Required , 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 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 assistents. Would you recommend that this policy be continued? 28 3-a Compute the variable overhead rate and efficiency variances. 3-b, Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 34 Req 38 Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month. CIndicate the effect of each variance by selectingp for favorable, U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Materials price variance Materials quantity variance Req 2A > Required 1 Compute a materials price variance for the plates purchased last month and a materials quantity varlance for the plates used last month 2. For labor cost in the lab a. Compute a labor rate variance 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 overhead efficiency variance and the labor efficiency variance? Complete this question by entering your answers in the tabs below Req 1 Req 2A Req 2B Reg 3A 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't for unfavorable, and None" for no effect (i.e., zero variance). Input all amounts as positive values.) Labor rate variance Labor efficiency variance Req 1 Req 2B > 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 veriance 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 overhead efficiency variance and the labor efficiency variance? Complete this question by entering your answers in the tabs below Req 1 Req 2A Req 2B Req 3A Req 3B 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? OYes ONo K Req 2A Req 3A >