1 Valley View Hospital 2 3 John Fleming, chief administrator for Valley View Hospital, is concerned about costs for tests in the hospital's lab. 4 Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many 5 complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from 6 insurance companies and governmental units have not been high enough to provide an acceptable level of profit 7 for the lab. 8 9 Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The following information 10 is available: 11 a. Basically, 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. 13 b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $28,200. Some 1,500 of these plates were still on hand unused at the end of the month; 15 there were no plates on hand at the beginning of the month. 16 C. During the past month, 1,150 hours of labor time were recorded in the lab. The cost of this labor time 17 was $13,800. 18 d. Variable overhead cost last month in the lab for utilities and supplies totaled $7,820. 12 14 20 Valley View Hospital has never used standard costs. By searching industry literature, however, you have 21 determined the following nationwide averages for hospital labs: 22 Plates : Two plates are required per lab test. These plates cost $2.50 each and are disposed of after the test 23 is completed. 24 Labor: Each blood test should require 0.3 hours to complete, and each smear should require 0.15 hours to 25 complete. The average cost of this lab time is $14 per hour. 26 Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per hour. 27 28 Mr. Fleming would like a complete analysis of the cost of plates, labor, and overhead in the lab for the last 29 month so that he can get to the root of the lab's cost problem. 30 31 Required: 32 (1) Compute a materials price variance for the plates purchased last month and a materials quantity variance 33 for the plates used last month. 34 (2) Compute a labor rate variance and a labor efficiency variance. 35