CRM 315 Lecture Notes - Lecture 3: Analysis Of Variance, Null Hypothesis, Dependent And Independent Variables
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"What's going on in that lab?" asked Derek Warren, chiefadministrator for Cottonwood Hospital, as he studied the priormonthâs reports. "Every month the lab teeters between a profit anda loss. Are we going to have to increase our lab fees again?" |
"We can't," replied Lois Ankers,the controller. "We're getting lots of complaints about the lastincrease, particularly from the insurance companies andgovernmental health units. They're now paying only about 80% ofwhat we bill. I'm beginning to think the problem is on the costside." |
To determine if lab costs are inline with other hospitals, Mr. Warren has asked you to evaluate thecosts for the past month. Ms. Ankers has provided you with thefollowing information: |
a. | Two basic types of tests are performed in the labâsmears andblood tests. During the past month, 3,400 smears and 1,000 bloodtests were performed in the lab. |
b. | Small glass plates are used in both types of tests. During thepast month, the hospital purchased 17,000 plates at a cost of$53,040. This cost is net of a 4% purchase discount. A total of2,400 of these plates were unused at the end of the month; noplates were on hand at the beginning of the month. |
c. | During the past month, 2,400 hours of labor time were used inperforming smears and blood tests. The cost of this labor time was$26,400. |
d. | The labâs variable overhead costlast month totaled $19,200. |
Cottonwood Hospital has never usedstandard costs. By searching industry literature, however, you havedetermined the following nationwide averages for hospital labs: |
Plates: | Three plates are required per lab test. These plates cost $3.25each and are disposed of after the test is completed. |
Labor: | Each smear should require 0.4 hours to complete, and each bloodtest should require 0.8 hours to complete. The average cost of thislab time is $11.6 per hour. |
Overhead: | Overhead cost is based on direct labor-hours. The average rateof variable overhead is $7.5 per hour. |
Required: |
1. | Compute the materials price variance for the plates purchasedlast month, and compute a materials quantity variance for theplates used last month. (Round your answers to 2 decimalplacesIndicate the effect of each variance byselecting "F" for favorable, "U" for unfavorable, and "None" for noeffect (i.e., zero variance).) | ||||||||||||||||||||||||||||||||||||||||||||||||
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2. | For labor cost in the lab: |
a. | Compute a labor rate variance and a labor efficiency variance.(Round your answers to 2 decimalplaces.Indicate the effect of each variance byselecting "F" for favorable, "U" for unfavorable, and "None" for noeffect (i.e., zero variance).) | ||||||||||||||||||||||||||||||||||||||||||||||||
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