In: Accounting
Ray Archuleta is the chief financial officer for the Feelgood Hospital in San Francisco. Mr. Archuleta has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available:
The 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 $5.00 each and are disposed of after the test is completed.
Labor: Each blood test should require 0.3 hours to complete, and each smear should require 0.15 hours to complete. The average cost of this lab time is $20 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per hour.
Required:
Cost Element | Standard Quantity or Hours | Standard Price or Rate | Standard Unit Cost |
Direct materials | |||
Direct labor - Blood Tests | |||
Direct labor - Smears |
2. Calculate the six standard cost variances shopwn below for the 4,200 tests completed in the lab last month. Indicate favorable (F) or unfavorable (U). Use whole numbers, no decimals, commas if necessary and no dollar signs.
Amount | Favorable or Unfavorable | |
Direct materials price variance | ||
Direct materials quantity variance | ||
Direct labor rate variance | ||
Direct labor efficiency variance | ||
Variable overhead rate variance | ||
Variable overhead efficiency variance |
You may prepare a separate tab in the Budget Problem Worksheet and upload it to show your work.
1.
Cost Element | Standard Quantity or Hours | Standard Price or Rate | Standard Unit Cost |
Direct materials | 2 | 5.00 | 10.00 |
Direct labor - Blood Tests | 0.3 | 20.00 | 6.00 |
Direct labor - Smears | 0.15 | 20.00 | 3.00 |
2.
Amount | Favorable or Unfavorable | |
Direct materials price variance | 3,600 | Favorable |
Direct materials quantity variance | 10,500 | Unfavorable |
Direct labor rate variance | 1,150 | Favorable |
Direct labor efficiency variance | 5,000 | Unfavorable |
Variable overhead rate variance | 920 | Unfavorable |
Variable overhead efficiency variance | 1,500 | Unfavorable |
Working:
Actual Cost | Standard Cost | |||||||||||||
AQP | x | AP | AQP | x | SP | AQ | x | SP | SQ | x | SP | |||
12000 | x | 4.70 | 12000 | x | 5.00 | 10500 | x | 5.00 | 8400 | x | 5.00 | |||
56400 | 60000 | 52500 | 42000 | |||||||||||
3600 | 10500 | |||||||||||||
Direct Materials Price Variance | Direct Materials Quantity Variance | |||||||||||||
Favorable | Unfavorable |
AQ = 12000 - 1500 = 10500
SQ = (1800 + 2400) x 2 = 4200 x 2 = 8400
Actual Cost | Standard Cost | |||||||||
AH | x | AR | AH | x | SR | SH | x | SR | ||
1150 | x | 19.00 | 1150 | x | 20.00 | 900 | x | 20.00 | ||
21850 | 23000 | 18000 | ||||||||
1150 | 5000 | |||||||||
Direct Labor Rate Variance | Direct Labor Efficiency Variance | |||||||||
Favorable | Unfavorable |
SH = (1800 x 0.3) + (2400 x 0.15) = 540 + 360 = 900
Actual Cost | Standard Cost | |||||||||
AH | x | AR | AH | x | SR | SH | x | SR | ||
1150 | x | 6.80 | 1150 | x | 6.00 | 900 | x | 6.00 | ||
7820 | 6900 | 5400 | ||||||||
920 | 1500 | |||||||||
VOH Rate Variance | VOH Efficiency Variance | |||||||||
Unfavorable | Unfavorable |