Question

SunQuest Labs Marc Gillinov, president of SunQuest Labs, was reviewing summary cost reports early in January 2018 when the data for the blood-testing facility caught his eye. Blood-testing Facility Summary 2016 2017 Variance Testing Materials S 29,000 $34,000 $ 5,000 U Direct Labor 455,000 609,000 154.000 U Lab Overhead Variable: Indirect Labor 39,500 10,500 (29,000) F Utilities 32,720 36,295 3,575 U Other 12,520 16,695 4,175 U Fixed: Supervision 40,000 40,000 Depreciation 25,000 50,000 25,000 U Lab Rent 72,000 78,000 6.000 U Other 8,460 14,900 6.440 U General Burden 73,700 84,500 10.800 U Total $787.900 $973.890 $185.990 U Mr. Gillinov was surprised and a bit disappointed at the cost increases shown. The only area which seemed to have improved was indirect labor. He immediately requested an in-depth investigation. This investigation produced the following information. The blood-testing facility performs two types of laboratory tests, a basic CBC test (complete blood count), and a more extensive CMP (comprehensive metabolic panel). These tests require different amounts of testing materials, where testing materials are purchased from suppliers as a bundled test kit. A CMP requires more testing material since it is more extensive. The supervisor for the lab explained that CMP tests use two test kits whereas the CBC test used only one test kit, when the lab operated at normal efficiency. An investigation of the records indicated that 145,000 kits had been used in the lab in 2016, and 136.000 kits in 2017. The price of testing k has gone up due to the use of petroleum byproducts in its manufacture. In 2016, one testing kit actually cost about $.20, and the actual cost in 2017 was $.25. The expected cost of one testing kit was $.18 in 2016, and this expected cost of one testing kit rose 33% in 2017.

Answer 1

Answer 1
Note 1	Increase in Testing Material Cost is due to the fact that more CMP tests were conducted during 2017
	and a CMP test requires twice the testing kit , as required in CBC test. Moreover, The cost of testing
	kit has also gone up from $ 0.20 to $ 0.25 ( increase of 33% )
Note 2	Direct Labour - Direct Labour has incrased from $ 0.18 per test to $ 0.24 per test ( by increase of 25% )
Note 3	Indirect labour - Two workers eliminated as the new system purchased , resulted into decrease
	in Indirect labour cost . However, the increase in Depreciation is the corresponding impact
Note 4	Utilities and Other variable overheads are corresponding to the increase in the volume from
	2016 to 2017 and are normal
Note 5	Depreciation is doubled due to impact of new machine depreciation , having a useful life of 10 years
Note 6	Lab rent is having a fixed rent increase if around 10 % , which is normal
	Others -almost doubled, need to investigate in detail the breakup of others
Note 7	General burden is an allocated cost and it is based on indirect labour rate ,which has decreased and
	despite overall decrease in Indirect labour cost and General overhead, the General burden cost
	has increased , which needs to be investigated.

Answer 2
Lab manager has not performed well , which is clear in following words
1) The Lab Manager has shown poor control over the consumption of Test Kit , which has consumed
around 34% higher than standards in year 2016 , while 13% higher in 2017
2) Increase in Utilities and Others - is also to be questioned, it has been more than corresponding increase in work
3) General burden expenses have increased , while it should have come down as the corresponding expenditure
on General overhead and other indirect expenses has decreased, which shows poor control
4) It seems that night shift working has been done and during night shift there was mismanagement in
consumption of testing kit , wastage of utilities and others.

Workings

		Blood testing facility
		2016	2017	variance
		$	$
Testing Materials		29000	34000	5000	Note 1
Direct Labor		455000	609000	154000	Note 2
Lab overhead				0
Variable				0
Indirect Labor		39500	10500	-29000	Note 3
Utilities		32720	36295	3575	Note 4
Other		12520	16695	4175	Note 4
Fixed				0
Supervision		40000	40000	0
Depreciation		25000	50000	25000	Note 5
Lab rent		72000	78000	6000	Note 6
Other		8460	14900	6440	Note 6
General burden		73700	84500	10800	Note 7
Total		787900	973890	185990

Overall Cost working
		2016	2017	2016	2017	Increase / decrease
		Qty	Qty	Amount	Amount
CBC tests		28000	40000			0
CMP tests		40000	40000			0
Testing kits consumed	CBC Tests	28000	40000			0
	CMP Tests	80000	80000			0
	should be consumed	108000	120000	0	0	0
	Actual consumed	145000	136000			0
	Cost / kit	0.2	0.25			0
Testing material cost				29000	34000	5000
	Cost per test	0.18	0.24			0
Cost of testing				26100	32640	6540
Direct labour	4 CBC / hour					0
	2 CBC / hour					0
	hourly rate / hour	16	20	448000	608000	160000
	Night shift	17.6	22			0
	Hours paid	28000	30400			0
General Overhead				888600	836500	-52100
Indirect labour cost				950000	500000	-450000
Fixed overhead				135000	180000	45000
Variable factory overhead		2.50/ hr	2/hr	70000	60800	-9200
Depreciation						0
Total				2546700	2251940	-294760