Question

Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned about cost control and has asked that performance reports be prepared that compare budgeted and actual amounts for medical assistants, clinic supplies, and lab tests. Past financial studies have shown that the cost of clinic supplies used is driven by the number of medical assistant labor hours worked, whereas lab tests are highly correlated with the number of patients served.

The following information is available for June:

Medical assistants Fall City’s standard wage rate is $15 per hour, and each assistant is expected to spend 30 minutes with a patient. Assistants totaled 890 hours in helping the 1,630 patients seen, at an average pay rate of $15.90 per hour.

Clinic supplies The cost of clinic supplies used is budgeted at $12 per labor hour, and the actual cost of supplies used was $9,350.

Lab tests Each patient is anticipated to have three lab tests, at an average budgeted cost of $70 per test. Actual lab tests for June cost $355,014 and averaged 3.3 per patient.

  

Required:

Prepare a report that shows budgeted and actual costs for the 1,630 patients served during June. Compute the differences (variances) between these amounts and label them as favorable or unfavorable.

On the basis of your answer to requirement (1), determine whether Fall City has any significant problems with respect to clinic supplies and lab tests.

3-a. Determine the spending and efficiency variances for lab tests. (Hint: In applying the overhead variance formulas, think of the number of tests as the activity level, and think of the cost per test as analogous to the variable overhead rate.)

3-b. Does it appear that Fall City has any significant problems with the cost of its lab tests?

Compare the lab test variance computed in requirement (1), a flexible-budget variance, with the sum of the variances in requirement (3-a). What is the relationship between the flexible budget variance and the total of the individual standard-cost variances?

Complete this question by entering your answers in the tabs below.

Required 1

Required 2

Required 3A

Required 3B

Required 4

Prepare a report that shows budgeted and actual costs for the 1,630 patients served during June. Compute the differences (variances) between these amounts and label them as favorable or unfavorable. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations.)

	Budget: Actual: 1,630 Patients 1,630 Patients Variance Medical assistants Clinic supplies Lab tests Total $0 $0

On the basis of your answer to requirement (1), determine whether Fall City has any significant problems with respect to clinic supplies and lab tests.

	On the basis of your answer to requirement (1), determine whether Fall City has any significant problems with respect to clinic supplies and lab tests.

Determine the spending and efficiency variances for lab tests. (Hint: In applying the overhead variance formulas, think of the number of tests as the activity level, and think of the cost per test as analogous to the variable overhead rate.) (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations.)

	Variable-overhead spending variance Variable-overhead efficiency variance

Does it appear that Fall City has any significant problems with the cost of its lab tests?

	Does it appear that Fall City has any significant problems with the cost of its lab tests?

Compare the lab test variance computed in requirement (1), a flexible-budget variance, with the sum of the variances in requirement (3-a). What is the relationship between the flexible budget variance and the total of the individual standard-cost variances?

The flexible-budget variance equals the total of the individual standard-cost variances.radio button unchecked1 of 3

The flexible-budget variance is greater than the sum of the total of the individual standard-cost variances.radio button unchecked2 of 3

The flexible-budget variance is less than the total of the individual standard-cost variances.

Answer 1

1	Report that shows budgeted and actual costs for the 1630 patients served during June
		Budget	Actual
		1630 Patients	1630 Patients	Variance
	Medical Assistants	12225	14151	1926	Unfavourable
	Clinic Supplies	9780	9350	-430	Favourable
	Lab test	342300	355014	12714	Unfavourable
	Total	364305	378515	14210	Unfavourable
2	Based on the answer to requirement 1, clinic supplies are budgeted at higher rate per hour,
	the variance is favourable and not very high or significant.
	Lab test are also budgeted at higher rate per test as compared to actual rate of $66 per test.
	Average budgeted test per patient is 3 whereas actual tests are 3.3 per patient, which results
	in unfavourable variance.
3-a	Determine the spending and efficiency variance for lab test
	Variable overhead Efficiency Variance
	Actual test at standard rate
	5379 test x $70 per test	$376,530
	Standard test at standard rate
	4890 test x $70 per test	$342,300
	Efficiency Variance	$34,230	Unfavourable
	Variable Overhead Spending Variance
	Actual test at actual rate	$355,014
	Standard test at standard rate	$342,300
	Spending Variance	$12,714	Unfavourable
3-b	The budgeted should be revised to correct the activity level, average test per patient to 3.3
	per patient to get the more accurate bugdet.
4	The flexible budget variance is less than the total of the individual standard cost variances