Solution
1. The standard quantity of plates allowed for tests
performed during the month would be:
Blood tests............................... 1,800
Smears.................................... 2,400
Total......................................... 4,200
Plates per test......................... × 2
Standard quantity allowed....... 8,400
The variance analysis for plates would be:
Actual Quantity Standard Quantity
Actual Quantity of of Input, at Allowed for
Input, at Actual Standard Price Output, at
Price Standard Price
(AQ × AP) (AQ × SP) (SQ × SP)
12,000 plates × 8,400 plates ×
$2.50 per plate $2.50 per plate
$28,200 = $30,000 = $21,000
Price Variance,
$1,800 F
10,500 plates × $2.50 per plate =
$26,250
Quantity Variance,
$5,250 U
Alternatively, the variances can be computed using the
formulas:
Materials price variance = AQ (AP – SP)
12,000 plates ($2.35 per plate* – $2.50 per plate) = $1,800 F
*$28,200 ÷ 12,000 plates = $2.35 per plate.
Materials quantity variance = SP (AQ – SQ)
$2.50 per plate (10,500 plates – 8,400 plates) = $5,250 U
(continued)
Note that all of the price variance is due to the hospital’s 6%
quantity discount. Also note that the $5,250 quantity variance
for the month is equal to 25% of the standard cost allowed for
plates.
2. a. The standard hours allowed for tests performed during the
month would be:
Blood tests: 0.3 hour per test × 1,800 tests. . 540 hours
Smears: 0.15 hour per test × 2,400 tests...... 360 hours
Total standard hours allowed......................... 900 hours
The variance analysis would be:
Actual Hours of Standard Hours
Input, at the Actual Hours of Allowed for Output,
Actual Rate Input, at the at the Standard
Standard Rate Rate
(AH × AR) (AH × SR) (SH × SR)
1,150 hours × 900 hours ×
$14.00 per hour $14.00 per hour
$13,800 = $16,100 = $12,600
Rate Variance, Efficiency Variance,
$2,300 F $3,500 U
Total Variance,
$1,200 U
Alternatively, the variances can be computed using the
formulas:
Labor rate variance = AH (AR – SR)
1,150 hours ($12.00 per hour* – $14.00 per hour) = $2,300 F
*$13,800 ÷ 1,150 hours = $12.00 per hour
Labor efficiency variance = SR (AH – SH)
$14.00 per hour (1,150 hours – 900 hours) = $3,500 U
(continued)
b. The policy probably should not be continued. Although the
hospital is saving $2 per hour by employing more assistants
than senior technicians, this savings is more than offset by
other factors. Too much time is being taken in performing lab
tests, as indicated by the large unfavorable labor efficiency
variance. And, it seems likely that most (or all) of the
hospital’s unfavorable quantity variance for plates is
traceable to inadequate supervision of assistants in the lab.
3. The variable overhead variances follow:
Actual Hours of Standard Hours
Input, at the Actual Hours of Allowed for
Actual Rate Input, at the Output, at the
Standard Rate Standard Rate
(AH × AR) (AH × SR) (SH × SR)
1,150 hours × 900 hours ×
$6.00 per hour $6.00 per hour
$7,820 = $6,900 = $5,400
Rate Variance, Efficiency Variance,
$920 U $1,500 U
Total Variance,
$2,420 U
Alternatively, the variances can be computed using the
formulas:
Variable overhead rate variance = AH (AR – SR)
1,150 hours ($6.80 per hour* – $6.00 per hour) = $920 U
*$7,820 ÷ 1,150 hours = $6.80 per hour
Variable overhead efficiency variance = SR (AH – SH)
$6.00 per hour (1,150 hours – 900 hours) = $1,500 U
Yes, the two variances are closely related. Both are computed
by comparing actual labor time to the standard hours allowed
for the output of the period. Thus, if the labor efficiency
variance is favorable (or unfavorable), then the variable
overhead efficiency variance will also be favorable (or
unfavorable).