Question

In: Accounting

Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned...

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?

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.)

Show less

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.

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.)

Show less

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?

Solutions

Expert Solution

Prepare a Report that Shows Budgeted and actual Cost for 1630 Patient
Particular Budgeted Cost Actual Cost Variance
Total Per Unit Total Per Unit
Medical Assistance $12,225.00 $7.50 $14,151.00 $7.95 -$1,926.00 Unfavourable
(1630*$7.50) ($15/2) (890*$15.90)
Clinic Supplies $9,780.00 $6.00 $9,350.00 $5.74 $430.00 Favourable
(1630*$6) ($12/2) ($9350/1630
Lab Test $342,300.00 $210.00 $355,014.00 $217.80 -$12,714.00 Unfavourable
(1630*$210) ($70*3) ($355014/1630)
Total Overhead $364,305.00 $223.50 $378,515.00 $231.49
Spending & Efficiency Variance for Lab Test
Standard Actual
No. of Test Rate/Test Total No. of Test Rate/Test Total
4890 $70.00 $342,300.00 5379 $66.00 $355,014.00
(1630*3) (1630*3.3) ($217.80/3.3)
Spending Variance (SR-AR)Actual No. of Test
=($70-$66)*5379=$21516 Favourable
Efficiency Variance (Standard No. of Test- Actual No. of Test) SR
=(4890-5379)$70=$34230 Unfavourable
Above Analysis shows that actual test per patient is required more than the expected test per patient anticipated . That's why Efficiency variance shown as unfavourable variance.

Related Solutions

Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned...
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...
Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned...
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...
Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned...
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...
Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned...
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...
Fall City Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned...
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...
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in...
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...
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in...
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...
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in...
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...
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in...
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...
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in...
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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT