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:

Question Completion:

simple claim - 36 mins

complex claim - 1.25 hrs

Employees were expected to be productive 7.5 hrs per day. Compensation costs were $135 per day per employee. During July, which had 20 working days, the following number of claims were processed:

simple claims - 3,000 processed

complex claims - 960 processed

REQUIRED

a. Calculate the number of workers that should have been available to process July claims.

b. Assume that 23 workers were actually available throughout the month of july. calculate a labor efficiency variance expressed as both a number of workers and a dollar amount for the month.

The Foster Insurance Company

a. The number of workers that should have been available to process July claims is;

= 20 workers.

b. Labor efficiency variance:

Number of workers = 3 U

Dollar value of variance = $8,100 U

Explanation:

a) Data and Calculations:

Standard time for processing simple claims = 36 minutes (0.6 hours)

Standard time for processing complex claims = 1.25 hours

Compensation costs per employee per day = $135

Expected number of hours per employee per day = 7.5 hours

Number of days worked in the month of July = 20 days

Number of simple claims processed = 3,000

Number of complex claims processed = 960

Total number of hours for processing claims in July:

Simple claims = 1,800 (3,000 * 0.6 hours)

Complex claims = 1,200 (960 * 1.25 hours)

Total hours worked in July = 3,000 hours

Hours worked per day = 150 hours (3,000/20 days)

Standard number of workers to process July claims = 20 (150/7.5)

Actual number of workers available for July claims = 23

Labor efficiency variance:

Number of workers = 3 U (20 - 23)

Dollar value of variance = $8,100 U (20 - 23) * ($135 * 20)

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