Reference no: EM13568380

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. Fleming has asked you to evaluate costs in the hospital's lab 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, 930 blood tests and 2,700 smears were performed in the lab.

b.Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,360 plates at a cost of $28,428. This cost is net of a 8% quantity discount. 2,000 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, 2,038 hours of labor time were recorded in the lab at a cost of $19,972.

d. The lab's variable overhead cost last month totaled $13,043.
Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:

Plates: Two plates are required per lab test. These plates cost $2.5 each and are disposed of after the
test is completed.
Labor: Each blood test should require 0.6 hours to complete, and each smear should require 0.4 hours to
complete. The average cost of this lab time is $11.8 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate of variable overhead is $5.8 per
hour.

Requirement

1:Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Omit the "tiny_mce_markerquot; sign in your response.)

Materials price variance $ (Click to select)FUNone
Materials quantity variance $ (Click to select)FNoneU
Requirement 2:

(a)Compute a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to the nearest dollar amount. Input all amounts as positive values. Omit the "tiny_mce_markerquot; sign in your response.)
Labor rate variance $ (Click to select)UNoneF
Labor efficiency variance $ (Click to select)NoneFU

(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?

(Click to select)NoYes
Requirement 3:

(a)Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Round your answers to the nearest dollar amount. Input all amounts as positive values. Omit the "tiny_mce_markerquot; sign in your response.)
Variable overhead rate variance $ (Click to select)FNoneU
Variable overhead efficiency variance $ (Click to select)UNoneF

(b)Which of the following statement(s) is true?