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 tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs. Mr. Flemming has asked you to evaluate costs in the hospital's tab 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. 400 blood tests and 2,400 smears were performed in the lab. b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $37,440. 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, 1400 hours of labor time were recorded in the lab at a cost of $14.700. d. The lab's variable overhead cost last month totaled $9,800. 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 $3,25 each and are disposed of after the test is completed. Labor Each blood test should require 0.4 hours to complete and each smear should require 0.20 hours to complete. The average cost of this lab time is $11.40 per hour. Overhead: Overhead cost is based on direct labor hours. The average rate for variable overhead is $6.50 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 variance, no in mnet hncrutale nna half of the word in the tabara contar tartinelane and one halfra sceltants in an effort to raro enote . we . 104 Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital tabs Plates: Three plates are required per lab test. These plates cost $3.25 each and are disposed of after the test is completed. Labor Each blood test should require 0.4 hours to complete, and each smear should require 0.20 hours to complete. The average cost of this tab time is $11.40 per hour. Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6.50 per hout. Required: 1. Compute a materials price variance for the plates purchased last month and a materials quantity vartance 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 varlance and the labor efficiency varlance? 25
