FINANCIAL ACCOUNTING
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Its a standard practice question I am struggling with
Transcribed Image Text:2-b. This part of the question is not part of your Connect assignment.
3-a. Compute the variable overhead spending and efficiency variances. (Indicate the effect of each varlance by selecting "F" for
favorable, "U" for unfavorable, and "None" for no effect (l.e., zero varlance).)
Variable overhead spending variance
Variable overhead efficiency variance
3-b. This part of the question is not part of your Connect assignment.
4. Compute the fixed overhead budget and volume variances. (Indicate the effect of each varlance by selecting "F" for favorable,
"U" for unfavorable, and "None" for no effect (l.e., zero varlance).)
Fixed overhead budget variance
Fixed overhead volume variance
Transcribed Image Text:Marc Goudreau, administrator of Clearwater Hospital, was puzzled by the prior month's reports. "Every month, it's anyone's guess
whether the lab will show a profit or a loss. Perhaps the only answer is to increase our lab fees again."
"We can't," replied Rhoda Groves, the controller. "There are still a lot of complaints about the last increase, particularly from the
insurance companies and government health units. They're now paying only about 81% of what we bill. I'm 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 660 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 $31,360.
This cost is net of a 2% purchase discount. A total of 1,600 of these plates were unused at the end of the month; no plates were on
hand at the beginning of the month.
c. During the past month, 1,400 hours of labour time were used in performing smears and blood tests. The cost of this labour time was
$17,990.00.
d. The lab's variable overhead cost last month totalled $4,950.
e. Fixed overhead cost last month totalled $8,500.
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 $2.00 each and are disposed of after the test is completed.
Labour: Each smear should require 8.3 hours to complete, and each blood test should require 0.6 hours to complete. The average
cost of this lab time is $15 per hour.
Overhead: Overhead cost is based on direct labour-hours. The average rate of variable overhead is $3 per hour. The average rate of
fixed overhead is $8 per hour. These rates are based on a denominator activity level of 1,000 hours per month.
Required:
1. Compute the materials price variance for the plates purchased last month, and compute a materials quantity variance for the plates
used last month. (Indicate the effect of each varlance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect
(I.e., zero variance).)
Materials price variance
Materials quantity variance
2-a. Compute a labour rate variance and a labour efficiency variance for the lab. (Indicate the effect of each varlance by selecting "F"
for favorable, "U" for unfavorable, and "None" for no effect (I.e., zero varlance). Do not round Intermediate calculation and round
your final answers to 1 decimal place.)
Labour rate variance
Labour efficiency variance
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