Question

The Foster Insurance company developed standard times for processing claims. When a claim was received at the processing center, it was first reviewed and classified as simple or complex. The standard time for processing was:

Simple claim 60 minutes

Complex claim 3.5 hours

Employees were expected to be productive 8 hours per day. Compensation costs were $93 per day per employee. During April, which had 21 working days, the following number of claims were processed: Simple claims 3,100 processed Complex claims 610 processed

Required:

A)Calculate the number of workers that should have been available to process April claims. (Do not round intermediate calculations.)

B)Assume that 33 workers were actually available throughout the month of April. Calculate a labor efficiency variance expressed as both a number of workers and a dollar amount for the month.

Answer 1

A) Calculation of No. of Workers :-

No. of Workers Required = Total Hours Required / Hours per employee per month

= 5235 hours / 168 hours

= 31.16 workers

= 31 approx.

Total Hours Required for Process :-

Simple Claims = (3100 * 60 minutes)/60 minutes

= 186000 minutes / 60 minutes

= 3100 hours

Complex Claim = 610 * 3.5 hours = 2135 hours

Total Hours Required = Simple Claims + Complex Claim

= 3100 hours + 2135 hours

= 5235 hours

Calculation of Total Hours of Work per month per worker :-

= Total Hours per day * No. of working days

= 8 hours * 21 days

= 168 hours

B) Efficiancy variance :-

= Expected Workers - Actual Workers

= 31 - 33

= 2 workers Unfavourable

Efficiancy Variance in Dollar Amount :-

= Efficiancy Variance in Workers * Standard Rate

= 2 workers * $1953

= $3906

Standard Rate = Cost per Day * No. of Working Days

= $93 * 21 days

= $1953