The director of a large regional reference laboratory was reviewing the service\

ID: 467215 • Letter: T

Question

The director of a large regional reference laboratory was reviewing the service's performance over the past year. The laboratory had gross revenues of $3,500,000. Some of the business was to managed care plans and to large-volume users that resulted in a discount of $350,000 which was $25,000 more than anticipated due to intense competition. The cost of providing lab testing was $1,400,500 which was $250,000 higher than expected. Direct costs for salaries were $870,000. What was the product mix variance experienced by the laboratory service? What was the price variance?

Question comes from " Essentials of Health Care Marketing" (3rd Edition) Chapter Problem number 5 for Chapter 14

Explanation / Answer

Actual

Planned

Sales

$3,500,000

$350,000

$325,000

Net Sales

$3,150,000

$3,175,000

$1,400,500

$1,150,500

Gross Contribution

$1,749,500

$2,024,500

$870,000

Net contribution

$879,500

$1,154,500

Planned Discounts = Actual Discount – $25,000

Planned cost of lab testing = Planned cost of lab testing – $250,000

Product Variance = Actual Gross Contribution – Planned Gross Contribution

Product Variance = $1,749,500 – $2,024,500

Product Mix Variance = – $275,000

Price Variance = Actual Net Sales – Planned Net Sales

Price Variance = $3,150,000 – $3,175,000

Price Variance = – $25,000