Answered: The Radiology Department provides…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter9: Evaluating Variances From Standard Costs

Section: Chapter Questions

Problem 5PB

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Question

The Radiology Department provides imaging services for Emergency Medical Center. One important activity in the Radiology Department is transcribing digitally recorded analyses of images into a written report. The manager of the Radiology Department determined that the average transcriptionist could type 700 lines of a report in an hour. The plan for the first week in May called for 81,900 typed lines to be written. The Radiology Department has three transcriptionists. Each transcriptionist is hired from an employment firm that requires temporary employees to be hired for a minimum of a 40-hour week. Transcriptionists are paid $23.00 per hour. The manager offered a bonus if the department could type more lines for the week, without overtime. Due to high service demands, the transcriptionists typed more lines in the first week of May than planned. The actual amount of lines typed in the first week of May was 88,900 lines, without overtime. As a result, the bonus caused the average transcriptionist hourly rate to increase to $30.00 per hour during the first week in May. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If an amount is zero, enter "0" and choose "Not applicable" from the dropdown. Required: 1. If the department had typed 81,900 lines according to the original plan, what would have been the labor time variance? $fill in the blank 1 2. What was the labor time variance as a result of typing 88,900 lines? $fill in the blank 3 3. What was the labor rate variance as a result of the bonus? $fill in the blank 5 4. The manager is trying to determine if a better decision would have been to hire a temporary transcriptionist to meet the higher typing demands in the first week of May, rather than paying out the bonus. If another employee had been hired from the employment firm, what would have been the labor time variance in the first week? $fill in the blank 7 5. Which decision is better, paying the bonus or hiring another transcriptionist? 6. Are there any performance-related issues that the labor time and rate variances fail to consider?

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