Posted: February 15th, 2016

Valley View Hospital has an outpatient clinic. Jeffrey Harper, the hospital’s chief administrator, is very concerned about cost control and

Valley View 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:

Lab Tests: Actual lab tests for June cost $159,027 and averaged 3.3 per patient. Each patient is anticipated to have three lab tests, t an average budgeted cost of $65 per test.

Medical Assistants: Valley View’s standard wage rate is $14 per hour, and each assistant is expected to spend 30 minutes with a patient. Assistants totaled 420 hours in helping the 790 patients seen, at an average pay rate of $15.50 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 $4,575.

1. Prepare a report that shows budgeted and actual costs for the 790 participants served during June. Compute the differences (variances) between these amounts and label them as favorable or unfavorable.

2. On the basis of your answer to #1, determine whether Valley View Hospital has any significant problems with respect to clinic supplies and lab tests. Briefly discuss your findings.

3. By performing a detailed analysis, determine the spending and efficiency variances for lab tests. Does it appear that Valley View Hospital has any significant problems with the cost of its lab tests?

4. Compare the lab tests variance computed in #1, a flexible budget variance, with the sum of the variances in requirement #3. Discuss your findings and explain the relationship of flexible budget variances and standard cost variances overhead.