# Problem 10-43 Unit Costs, Multiple Products, Variance Analysis, Service Setting

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Problem 10-43
Unit Costs, Multiple Products, Variance Analysis, Service Setting

The maternity wing of the city hospital has
two types of patients: normal and cesarean. The standard quantities of labor
and materials per delivery for 2013 are:

The standard price paid per pound of direct
materials is \$10. The standard rate for labor is \$16. Overhead is applied on
the basis of direct labor hours. The variable overhead rate for maternity is
\$30 per hour, and the fixed overhead rate is \$40 per hour.

Actual operating data for 2013 are as follows:

a.
Deliveries produced:
normal, 4,000; cesarean, 8,000.

b.
Direct materials purchased
and used: 200,000 pounds at \$9.50â€”35,000 for normal maternity patients and
165,000 for the cesarean patients; no beginning or ending raw materials
inventories.

c.
Nursing labor: 50,700
hoursâ€”10,200 hours for normal patients and 40,500 hours for the cesarean; total
cost of labor, \$580,350.

Required:

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1. Prepare a standard cost sheet
showing the unit cost per delivery for each type of patient. If required

 City Hospital
 Standard Cost Sheet
 Normal Patient Delivery
 Standard Price
 Standard Usage
 Standard Cost
 Direct materials
 \$
 lbs.
 \$
 Direct labor
 hrs.
 hrs.
 hrs.
 Unit cost
 \$

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 City Hospital
 Standard Cost Sheet
 Cesarean Patient Delivery
 Standard Price
 Standard Usage
 Standard Cost
 Direct materials
 \$
 lbs.
 \$
 Direct labor
 hrs.
 hrs.
 hrs.
 Unit cost
 \$

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2. Compute the materials
price and usage variances for each type of patient.

 MPV – Normal \$ Select Favorable Unfavorable Correct 2 of Item 3 MPV – Cesarean \$ Select Favorable Unfavorable Correct 4 of Item 3 MUV – Normal \$ Select Favorable Unfavorable Correct 6 of Item 3 MUV – Cesarean \$ Select Favorable Unfavorable Correct 8 of Item 3

3. Compute the labor rate
and efficiency variances for each type of patient. If required, round average
rate in intermediate calculations to two decimal places. Round your final

 LRV – Normal \$ Select Favorable Unfavorable Correct 10 of Item 3 LRV – Cesarean \$ Select Favorable Unfavorable Correct 12 of Item 3 LEV – Normal \$ Select Favorable Unfavorable Correct 14 of Item 3 LEV – Cesarean \$ Select Favorable Unfavorable Correct 16 of Item 3

4. Conceptual Connection:
Assume that you know only the total direct materials used for both products and
the total direct labor hours used for both products. Can you compute the total
materials usage and labor efficiency variances?

 Computations: MUV \$ Select Favorable Unfavorable Correct 19 of Item 3 LEV \$ Select Favorable Unfavorable Correct 21 of Item 3

5. Conceptual Connection:
Standard costing concepts have been applied in the healthcare industry. For
example, diagnostic-related groups (DRGs) are used for prospective payments for
Medicare patients. Select a search engine (such as Yahoo! or Google), and
conduct a search to see what information you can obtain about DRGs. You might
try “Medicare DRGs” as a possible search topic. Write a memo that

a.
What is a DRG?

b.
How are DRGs established?

c.
How many DRGs are used?

d.
How does the DRG concept
relate to standard costing concepts discussed in the chapter? Can hospitals use
DRGs to control their costs?

Explain.

The input in the box below will not be graded, but may be
reviewed and considered by your instructor.

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