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question two comprehensive variance analysis in a hospital marc goudreau...

Question: question two comprehensive variance analysis in a hospital marc goudreau...

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QUESTION TWO: Comprehensive Variance Analysis in a Hospital Marc Goudreau, administrator of Clearwater Hospital, was puzzled by the prior months reports. Every month, its anyones guess whether the lab will show a profit or a loss. Perhaps the only answer is to increase our lab fees again. We cant, replied Rhoda Groves, the controller. There are still a lot of and government health units. Theyre now paying only about 80% of what we bill. complaints about the last increase, particularly from the insurance companies Im beginning to think the problem is on the cost side. To determine if the Clearwater lab costs are in line with those of other hospital labs, Goudreau has asked you to evaluate the costs for the past month. Groves has provided you with the following information: a. Two basic types of tests are performed in the lab-smears and blood tests. During the past month, 2,700 smears and 900 blood tests were performed in the lalb b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 16,000 plates at a cost of $38,400. This cost is net of a 4% purchase discount. A total of 2,000 of these plates were unused at the end of the month; no plates were on hand at the beginning the month c. During the past month, 1,800 hours of labour time were used in performing smears and blood tests. The cost of this labour time was $18,450 d. The labs variable overhead cost last month totalled $11,700. e. Fixed overhead cost last month totalled $10.400 Clearwater Hospital has never used standard costs. By searching industry hospital labs are disposed of after the test is completed literature, however, you have determined the following nationwide averages for Plates: Three plates are required per lab test. These plates cost S2.50 each and Labour: Each smear should require 0.3 hours to complete, and each blood test up

Paragraph To determine if the Clearwater lab costs are in line with those of other hospital labs, Goudreau has asked you to evaluate the costs for the past month. Groves has provided you with the following information: a. Two basic types of tests are perfomed in the lab-smears and blood tests. During the past month, 2,700 smears and 900 blood tests were performed in the lab b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 16,000 plates at a cost of $38,400. This cost is net of a 4% purchase discount A total of 2,000 of these plates were unused at the end of the month; no plates were on hand at the beginning the month. During the past month, 1,800 hours of labour time were used in performing smears and blood tests. The cost of this labour time was $18,450 c. d. The labs variable overhead cost last month totalled $11,700. e. Fixed overhead cost last month totalled $10,400 Clearwater 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 $2.50 each and are disposed of after the test is completed Labour: Each smear should require 0.3 hours to complete, and each blood test should require 0.6 hours to complete. The average cost of this lab time is $12 per hour Overhead: Overhead cost is based on direct labour-hours. The average rate of variable overhead is $6 per hour. The average rate of fixed overhead is S8 per hour. These rates are based on a denominator activity level of 1.250 hours per month. Required: hp

1. Compute the materials price variance for the plates purchased last month, and compute a materials quantity variance for the plates used last month. 2. For labour cost in the lab: a. Compute a labour rate variance and a labour efficiency variance b. In most hospitals, three-quarters of the workers in the lab are certified technicians and one-quarter are assistants. In an effort to reduce costs, Clearwater Hospital employs only one-half certified technicians and one-half assistants. Would you recommend that this policy be continued? Explain. 3. Compute the variable overhead spending and efficiency variances. Is there any relationship between the variable overhead efficiency variance and the labour efficiency variance? Explain 4. Compute the fixed overhead budget and volume variances up

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