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 $9.50—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
hours—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
round your answers to one decimal place.

City
Hospital

Standard
Cost Sheet

Normal
Patient Delivery

Standard
Price

Standard
Usage

Standard
Cost

Direct materials

$

lbs.

$

Direct labor

hrs.

Variable overhead

hrs.

Fixed overhead

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.

Variable overhead

hrs.

Fixed overhead

hrs.

Unit cost

$

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

MPV – Normal

$

MPV – Cesarean

$

MUV – Normal

$

MUV – Cesarean

$

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
answers to the nearest dollar.

LRV – Normal

$

LRV – Cesarean

$

LEV – Normal

$

LEV – Cesarean

$

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

$

LEV

$

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
answers the following questions:

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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