Question

The maternity wing of the city hospital has two types of patients: normal and cesarean. The standard quantities of labor and materials per delivery for 20X1 are:

------------------------------Normal ----------Cesarean

Direct materials (lbs.) 9.0 21

Nursing labor (hrs.) 2.5 5

The standard price paid per pound of direct materials is $10.00. The standard rate for labor is $16.00. Overhead is applied on the basis of direct labor hours. The variable overhead rate for maternity is $30.00 per hour, and the fixed overhead rate is $40.00 per hour.

Actual operating data for 20X1 are as follows:

a. Deliveries produced: normal, 4,000; cesarean, 8,000.

b. Direct materials purchased and used: 200,000 pounds at $9.50—35,000 for normal maternity patients and 165,000 for the cesarean patients; no beginning or ending raw materials inventories.

c. Nursing labor: 50,700 hours—10,200 hours for normal patients and 40,500 hours for the cesarean; total cost of labor, $580,350.

Required:

1. Prepare a standard cost sheet showing the unit cost per delivery for each type of patient.

2. Compute the materials price and usage variances for each type of patient.

3. Compute the labor rate and efficiency variances for each type of patient.

4. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Can you compute the total materials usage and labor efficiency variances?

Answer 1

1)STANDARD COST SHEET -FOR ACTUAL

	NORMAL	CESAREAN
NO. OF DELIVERIES	4,000	8,000
NURSING HOURS USED AS PER STANDARD	10,000 HRS (4,000*2.5)	40,000 HRS (8,000*5)
DIRECT MATERIAL USED	36,000 LBS (4,000*9)	168,000 LBS(8,000*21)
DIRECT MATERIAL COST	$360,000 (36,000* $10)	$1,680,000(168,000*$10)
DIRECT LABOUR COST	$160,000 (10,000 *$16)	$640,000(40,000*$16)
VARIABLE OVERHEAD RATE	$300,000 (10,000 *$30)	$1,200,000 (40,000*$30)
FIXED OVERHEAD RATE	$400,000(10,000 *$40)	$1,600,000 (40,000*$40)
TOTAL COST	$1,220,000	$5,120,000

2)

	STANDARD				ACTUAL
NORMAL DELIVERIES:
MATERIAL:	QUANTITY	RATE	AMOUNT		QUANTITY	RATE	AMOUNT
DIRECT MATERIAL	36,000	10	$360,000		35,000	9.50	$332,500
NURSING HOURS	HOURS	RATE	AMOUNT		HOURS	RATE	AMOUNT
DIRECT LABOUR	10,000	16	$160,000		10,200	($580,350/50,700 hours)	116,757
Cesarean Deliveries
Material	quantity	rate	amount		quantity	rate	amount
	168,000	10	1,680,000		165,000	9.50	1,567,500
labour	hours	rate	amount		hours	rate	amount
	40,000	16	640,000		40,500	($580,350/50,700 hours)	$463,593

Material price variance:ACTUAL QUANTITY( STD. RATE- Actual rate)

Normal=35,000($10-$9.50)=$17,500(F)

Cesarean=165,000($10-$9.50)=$82,500(F)

Material usage variance:Standard price(Std. Quantity- Actual Quantity)

Normal=$10(36,000-35,000)=$10,000(F)

Cesarean=$10(168,000-165,000)=$30,000(F)

3)

Labour rate variance:ACTUAL hours ( STD. RATE- Actual rate)

Normal=10,200($16-($580,350/50,700 hours))=$46,443(F)

Cesarean=40,500($16-($580,350/50,700 hours))=$184,407(F)

Labour efficiency variance:Standard rate(Std. Hours- Actual Hours)

Normal=$16(10,000-10,200)=$3,200(U)

Cesarean=$16(40,000-40,500)=$8,000(U)

4)

	STANDARD	ACTUAL
TOTAL MATERIAL USED	204,000	200,000
STANDARD RATE	$10
TOTAL HOURS USED	50,000	50,700
STANDARD RATE	$16

TOTAL MATERIAL USAGE VARIANCE:STANDARD PRICE(STANDARD QUANTITY-ACTUAL QUANTITY)

=$10(204,000-200,000)=$40,000(F)

LABOUR EFFICIENCY VARIANCE:STD RATE(STD. HOURS FOR ACTUAL OUTPUT - ACTUAL HOURS)

=$16(50,000-50,700)=$11,200(U)