Problem 10 19 Comprehensive Variance Analysis in a Hospital LO2, LO3, LO4, LO5, LO6 Marc Goudreau, administrator of Clearwater Hospital, was puzzled by the prior months reports Every month, its anyones guess whether the lab will show a profit or a loss Perhaps the only answer is to increase our lab fees again We cant, replied Rhoda Groves, the controller There are still a lot of complaints about the last increase, particularly from the insurance companies and government health units Theyre now paying only about 81 of what we bill Im beginning to think the problem is on the cost side To determine if the Clearwater lab costs are in line with those of other hospital labs, Goudreau has asked you to evaluate the costs for the past month Groves has provided you with the following information a Two basic types of tests are performed in the labsmears and blood tests During the past month, 2,700 smears and 1,500 blood tests were performed in the lab b Small glass plates are used in both types of tests During the past month, the hospital purchased 14,000 plates at a cost of $25,536 This cost is net of a 4 purchase discount A total of 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, 1,900 hours of labour time were used in performing smears and blood tests The cost of this labour time was $19,950 d The labs variable overhead cost last month totalled $5,980 e Fixed overhead cost last month totalled $9,000 Clearwater 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 $1 90 each and are disposed of after the test is completed Labour Each smear should require 0 3 hours to complete, and each blood test should require 0 6 hours to complete The average cost of this lab time is $12 per hour Overhead Overhead cost is based on direct labour hours The average rate of variable overhead is $3 per hour The average rate of fixed overhead is $7 per hour These rates are based on a denominator activity level of 1,250 hours per month Required 1 Compute the materials price variance for the plates purchased last month, and compute 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) Leave no cells blank be certain to enter 0 wherever required Input all amounts as positive values Round your answers to the nearest dollar amount Omit the $ sign in your response ) Materials price variance $ (Click to select)FNoneU Materials quantity variance $ (Click to select)NoneFU 2 For labour cost in the lab a Compute a labour rate variance and a labour efficiency variance (Indicate the effect of each variance by selecting F for favourable, U for unfavourable, and None for no effect (i e , zero variance) Leave no cells blank be certain to enter 0 wherever required Input all amounts as positive values Round your answers to the nearest dollar amount Omit the $ sign in your response ) Labour rate variance $ (Click to select)NoneUF Labour efficiency variance $ (Click to select)FNoneU 3 a Compute the 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 ) Leave no cells blank be certain to enter 0 wherever required Input all amounts as positive values Round your answers to the nearest dollar amount Omit the $ sign in your response ) Variable overhead spending variance $ (Click to select)NoneFU Variable overhead efficiency variance $ (Click to select)NoneUF 4 Compute the fixed overhead budget and volume variances (Indicate the effect of each variance by selecting F for favourable, U for unfavourable, and None for no effect (i e , zero variance ) Leave no cells blank be certain to enter 0 wherever required Input all amounts as positive values Round your answers to the nearest dollar amount Omit the $ sign in your response ) Fixed overhead budget variance $ (Click to select)UFNone Fixed overhead volume variance $ (Click to select)UFNone

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Problem 10-19 Comprehensive Variance Analysis in a Hospital [LO2, LO3, LO4, LO5, LO6] Marc Goudreau, administrator of Clearwater Hospital, was puzzled by the prior months

Problem 10-19 Comprehensive Variance Analysis in a Hospital [LO2, LO3, LO4, LO5, LO6]

Marc Goudreau, administrator of Clearwater Hospital, was puzzled by the prior months reports. Every month, its anyones guess whether the lab will show a profit or a loss. Perhaps the only answer is to increase our lab fees again.

We cant, replied Rhoda Groves, the controller. There are still a lot of complaints about the last increase, particularly from the insurance companies and government health units. Theyre now paying only about 81% of what we bill. Im beginning to think the problem is on the cost side.

To determine if the Clearwater lab costs are in line with those of other hospital labs, Goudreau has asked you to evaluate the costs for the past month. Groves has provided you with the following information:

a.	Two basic types of tests are performed in the labsmears and blood tests. During the past month, 2,700 smears and 1,500 blood tests were performed in the lab.
b.	Small glass plates are used in both types of tests. During the past month, the hospital purchased 14,000 plates at a cost of $25,536. This cost is net of a 4% purchase discount. A total of 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, 1,900 hours of labour time were used in performing smears and blood tests. The cost of this labour time was $19,950.
d.	The labs variable overhead cost last month totalled $5,980.
e.	Fixed overhead cost last month totalled $9,000.

Clearwater 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 $1.90 each and are disposed of after the test is completed.
*Labour:*	Each smear should require 0.3 hours to complete, and each blood test should require 0.6 hours to complete. The average cost of this lab time is $12 per hour.
*Overhead:*	Overhead cost is based on direct labour-hours. The average rate of variable overhead is $3 per hour. The average rate of fixed overhead is $7 per hour. These rates are based on a denominator activity level of 1,250 hours per month.

Required:

Compute the materials price variance for the plates purchased last month, and compute 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). Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values.Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)


Materials price variance	$	(Click to select)FNoneU
Materials quantity variance	$	(Click to select)NoneFU

For labour cost in the lab:

Compute a labour rate variance and a labour efficiency variance. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance). Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)


Labour rate variance	$	(Click to select)NoneUF
Labour efficiency variance	$	(Click to select)FNoneU

3-a.

Compute the 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.). Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)


Variable overhead spending variance	$	(Click to select)NoneFU
Variable overhead efficiency variance	$	(Click to select)NoneUF

Compute the fixed overhead budget and volume variances. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance.). Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)