Question

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, 250 blood tests and 2,100 smears were performed in the lab. b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 10,500 plates at a cost of $35,910. 1,100 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, 1,100 hours of labor time were recorded in the lab at a cost of $11,385. d. The lab's variable overhead cost last month totaled $7,370. 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 $3.60 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 $11.10 per hour. Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6.20 per hour.

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Answer 1

Standard plated required	7050	=(250+2100)*3
Actual plates used	9400	=10500-1100
Standard labor hours	520	=(250*0.4)+(2100*0.2)
1
Materials price variance	1890	F	=35910-(10500*3.6)
Materials quantity variance	8460	U	=3.6*(9400-7050)
2A
Labor rate variance	825	F	=11385-(1100*11.1)
Labor efficiency variance	6438	U	=11.1*(1100-520)
2B
NO, as labor variance is unfavorable
3A
Variable overhead rate variance	550	U	=7370-(1100*6.2)
Variable overhead efficiency variance	3596	U	=6.2*(1100-520)
3B
Yes, there is relationship between variable overhead efficiency and labor efficiency variance