The Radiology Department provides imaging services for Mercy Medical Center. One important activity in the Radiology Department is transcribing tape-recorded analyses of images into a written report. The manager of the Radiology Department determined that the average transcriptionist could type 600 lines of a report in an hour.

The plan for the first week in July called for 69,000 typed lines to be written. The Radiology Department has three transcriptionists. Each transcriptionist is hired from an employment firm that requires that temporary employees be hired for a minimum of a 40-hour week. Transcriptionists are paid $18.00 per hour. The manager offered a bonus if the department could type more than 72,000 lines for the week, without overtime. Due to high service demands, the transcriptionists typed more lines in the first week of July than planned. The actual amount of lines typed in the first week of July was 75,000 lines, without overtime. As a result, the bonus caused the average transcriptionist hourly rate to increase to $20.00 per hour during the first week in July.

Instructions

1. If the department typed 69,000 lines according to the original plan, what would have been the labor time variance?

2. What was the labor time variance as a result of typing 75,000 lines?

3. What was the labor rate variance as a result of the bonus?

4. The manager is trying to determine if a better decision would have been to hire a temporary transcriptionist to meet the higher typing demands in the first week of July, rather than paying out the bonus. If another employee was hired from the employment firm, what would have been the labor time variance in the first week?

5. Which decision is better, paying the bonus or hiring another transcriptionist?

6. Are there any performance-related issues that the labor time and rate variances fail to consider? Explain.