Englert Hospital began using standards to evaluate its Admissions Department. The standard was broken into two types of admissions as follows

Englert Hospital began using standards to evaluate its Admissions Department. The standard was broken into two types of admissions as follows:

                      Standard Time to Complete
Type of admission         admission Record
Unscheduled admission          30 min.
Scheduled admission            15 min.

The unscheduled admission took longer, since name, address, and insurance information needed to be determined and verified at the time of admission. Information was collected on scheduled admissions prior to the admissions, which was less time consuming.

The Admissions Department employs four full-time people (40 productive hours per
week, with no overtime) at $15 per hour. For the most recent week, the department handled 140 unscheduled and 350 scheduled admissions.

a. How much was actually spent on labor for the week?
b. What are the standard hours for the actual volume for the week?
c. Calculate a time variance, and report how well the department performed for the week.

Answer:


a.  Actual weekly expenditure:  4 people × $15.00 per hour × 40 hrs. per week = $2,400 
b.  Standard time used for the volume of admissions: 
Unscheduled Scheduled 
Number of admissions……… 140 350 
× Standard time……………   30 min.   15 min. 
Total 
Total……………………………   4,200 min.  5,250 min. 9,450 min. or 
(157.5 hrs. × 60 min.) 
c.  Actual productive minutes available 
  (4 employees × 40 hrs. × 60 min.)............................. 9,600 minutes  
 Less standard minutes used at actual volume............ 9,450 minutes  
 Time difference from standard ...................................... 150 minutes 
 × Standard rate per minute
1
 ........................................... $  0.25 
 Direct labor time variance—unfavorable ..................... $37.50 
 or 
[(4 × 40 hours) – 157.5 hours] × $15 per hour = $37.50 
or 
$2,400 [from (a)] – $2,362.50
2  
= $37.50 
1 
Standard direct labor rate: 
$15 ÷ 60 min. = $0.25 per min. 
2 
Standard labor cost at actual volume: 
Productive time (9,450 ÷ 60) × $15 = $2,362.50 
The Admissions Department was less efficient than standard by 150 minutes, 
or 2.5 hours. This is equal to $37.50 at the standard rate of $15 per hour.