Question 2 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 reimbursed for lab test, payments received from insurance companies and governmental units have not been Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The following information is available: VALLEY VIEW HOSPITAL Number of blood tests 1,800 Number of smears 2,400 Number of plates purchased 12,000 Cost of plates $28,200 Quantity discount allowed 6% Unused plates at month end 1,500 Labor hours 1,150 Cost of labor hours $13,800 Variable overhead costs $7,820 Nationwide averages: Number of plates per test 2 Cost per plate $2.50 Time for smear (hours) 0.15 Time for blood test (hours) 0.30 Average cost of lab time per hour $14.00 Variable overhead rate $6.00 Required 1 Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last 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? Explain. 3 Compute the variable overhead rate and efficiency variances. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain