Problem 11 - Accounting

Question

St. Luke Hospital began using standards to evaluate its Admissions Department. The standard was broken into two types of admissions as follows: \begin{tabular}{lc} Type of Admission & Standard Time to Complete Admission Record \\ \cline { 2 - 3 } Unscheduled admission & 40 min. \\ Scheduled admission & \(10 \mathrm{~min} .\) \end{tabular} The unscheduled admission took longer, since name, address, and insurance information needed to be determined at the time of admission. Information was collected on scheduled admissions prior to the admissions, which was less time consuming. The Admissions Department employs two full-time people (40 productive hours per week, with no overtime) at \(\$ 18\) per hour. For the most recent week, the department handled 66 unscheduled and 240 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.

Step-by-Step Solution

Answer

a. $1440; b. 84 hours; c. The department worked 4 hours under standard hours.

Step 1: Calculate Total Labor Hours Required

Each unscheduled admission requires 40 minutes, and there were 66 such admissions. Each scheduled admission takes 10 minutes, and there were 240 scheduled admissions. Convert these times into hours to find total hours required.Total time for unscheduled admissions: \(66 \times \frac{40}{60} = 44\) hoursTotal time for scheduled admissions: \(240 \times \frac{10}{60} = 40\) hoursTotal hours required: \(44 + 40 = 84\) hours.

Step 2: Calculate Actual Labor Hours Worked

The Admissions Department employs two full-time employees working 40 hours each per week. Calculate the total actual labor hours worked by both employees.Labor hours worked by one employee: 40 hours/weekTotal labor hours worked by two employees: \(2 \times 40 = 80\) hours.

Step 3: Calculate Labor Cost for the Week

Given that each employee is paid \(\\(18\) per hour, calculate the total labor cost for the week based on the hours worked.Labor cost per hour (for one employee): \\)18Total labor cost for two employees: \(80 \times 18 = 1440\) dollars.

Step 4: Calculate Standard Hours for Actual Volumes

Determine the standard hours for the actual volume of work done during the week, according to the standards.Standard hours for unscheduled admissions (66 admissions): \(66 \times \frac{40}{60} = 44\) hoursStandard hours for scheduled admissions (240 admissions): \(240 \times \frac{10}{60} = 40\) hoursTotal standard hours: \(44 + 40 = 84\) hours.

Step 5: Calculate Time Variance

Time variance is calculated as the difference between the actual labor hours and the standard hours.Time variance: \(80 - 84 = -4\) hours.A negative variance indicates that the department worked fewer hours than the standard hours.

Key Concepts

Standard Costing

Standard costing is an approach to management accounting that enables organizations to set a benchmark for expenditures regarding labor, materials, and overhead. This benchmark is referred to as a "standard," and it serves as a reference point against which actual performance can be measured.

In the context of St. Luke Hospital, standard costing was applied to evaluate the Admissions Department's efficiency by setting time standards for both unscheduled and scheduled admissions. These standards were expressed in minutes per admission type, which provided a clear expectation for the time each type of admission should ideally take to be processed.

• For unscheduled admissions, the standard was 40 minutes.
• For scheduled admissions, it was 10 minutes.

The purpose of setting these standards is to encourage departments to improve performance by analyzing differences between actual results and standards. By identifying these variances, departments can focus on areas that need improvement or further investigation.

Labor Variance Analysis

Labor variance analysis is a crucial tool within managerial accounting that helps organizations understand the efficiency of their labor usage. It involves comparing the standard hours required to perform a task with the actual hours worked and thus unveils areas where labor could be managed better.

In St. Luke Hospital's exercise, labor variance analysis was used to compare the standard hours (84 hours) needed for the admissions versus the actual hours worked (80 hours). The time variance was calculated as:

• Actual Labor Hours: 80
• Standard Labor Hours: 84
• Time Variance = 80 - 84 = -4 Hours

A negative variance in this context meant that the Admissions Department used fewer hours than the standards prescribed. This outcome could indicate efficient time management by the admissions staff but might also necessitate a review to ensure that the reduced time didn't compromise service quality.

Time Management in Healthcare

Time management is vital in healthcare settings, particularly in departments like admissions, where efficiency directly affects patient flow and resource utilization. Effective time management helps ensure that healthcare providers can deliver services without undue delay and use resources optimally.

In the case of St. Luke Hospital, the set standard times for processing admissions served not just as performance benchmarks but also as time management targets. By analyzing the time variance, healthcare managers can identify whether admissions processes are streamlined or require adjustments.

• Scheduling staff appropriately to cover peak hours can help maintain efficiency.
• Continuous monitoring against standards can signal areas for training or process re-design to align with best practices.

Properly managed time results in improved patient experiences and better operational outcomes, contributing to overall healthcare service effectiveness.

Cost Efficiency

Cost efficiency in a healthcare setting means delivering quality services at the lowest possible cost. It requires a delicate balance between cost reduction and maintaining or improving service quality.

In the context of the Admissions Department at St. Luke Hospital, cost efficiency was indirectly evaluated through the labor cost variance analysis. With two full-time employees working more economically than anticipated by using fewer hours, the department reduced expenditure effectively without overspending on labor.

• Labor Cost Calculated: $1,440
• Expected Cost based on Standard Hours: $1,512

The department saved costs by working fewer hours while handling a large volume of admissions. This was achieved without adding overtime, thus avoiding additional pay. Such savings highlight the value of consistent performance reviews to ensure that each department maximizes resource usage while maintaining service quality.