Waverley Hospital runs an outpatient clinic, Jenny Holt, the Hospital’s CEO, is very concerned about cost control and has asked that performance reports be prepared that compare budgeted and actual amounts for the clinic. She wants these reports to focus on three problem areas: the cost of medical assistants, clinic supplies and lab tests. Cost analysis studies have shown that the cost of clinic supplies used is driven by the number of medical assistant labour hours worked. Lab tests are highly correlated with the number of patients served.
The following information is available for June:
■ Lab tests: Actual lab tests cost $159 027 and averaged 3.3 tests per patient. Each patient is anticipated to have 3 lab tests at an average cost of $65 per test.
■ Medical assistants: The standard wage rate is $28 per hour, and each assistant is expected to spend 30 minutes with a patient. Assistants worked 420 hours helping 790 patients, at an average pay-rate of $31 per hour.
■ Clinic supplies: The cost of clinic supplies is budgeted at $12 per direct labour hour, and the actual cost of supplies used was $4575.
1. Prepare a report that shows the budgeted cost and the actual costs for the 790 patients that were seen by the clinic during June. Calculate the variance between these amounts and label these as favourable or unfavourable.
2. Based on your report prepared for requirement 1, determine whether Waverley Hospital has any significant problems with respect to the cost of clinic supplies and lab tests. Briefly discuss your findings.
3. Calculate the spending and efficiency variances for lab tests. Do you think that the hospital has any significant problems with the cost of lab tests?
4. Compare the lab test variances calculated in requirement 1, a flexible budget variance, with the sum of the variance in requirement 3. Discuss your findings and explain the relationship between the flexible budget variances and the standard cost variances for variable overhead?