Week 5 Discussion

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Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month. Materials Price Variance measures the difference between what is paid for a given quantity of materials and what should have been paid according to the standard. (Actual Quantity x Actual Price) – (Actual Quantity x Standard Price) or AQ (AP-SP) Materials Price Variance = 12,000 plates x ($2.50 - $2.35) = $1,800

Materials Quantity Variance measures the difference between the quantity of materials used in production and the quantity that should have been used according to the standard. (Actual Quantity x Standard Price) – (Standard Quantity x Standard Price) or SP (AQ – SQ) Materials Quantity Variance = 10,500 plates – [2 plates x (1,800 + 2,400)] = 2x4200 x $2.50/plate = (10,500 plates - 8,400 plates) x $2.50/plate

= 2,100 plates x $2.50/plate
Materials Quantity Variance = $5,250

For labor cost in the lab:
Compute a labor rate variance and a labor efficiency variance: Labor Rate Variance = actual hours worked x difference between actual cost per hour and standard cost per hour
= 1,150 hrs x ($14 - $12)
= 1,150 hrs x $2/hr
Labor Rate Variance = $2,300
Standard Hours Allowed: (1,800 x 0.30) + (2,400 x 0.15) = 900 hours

Labor Efficiency Variance = difference between actual hours worked and standard hours allowed per hour x standard cost = (1150 hr - 900 hr) x $14/hr
= 250 hr x $14/hr
Labor Efficiency Variance = $3,500

Would you recommend that this policy be continued? Explain.
I would not recommend this policy being continued.  Valley View hospital does save in the labor rate variance resulting in $2,300.  However, with the assistants, the job is probably not being done effectively. It would require more hours to complete the lab tests and also require more material. Compute the variable overhead rate and efficiency variances. Is there any relation between the variable overhead efficiency...
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