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 - 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.

Answer 1

Time Needed In Minutes

Simple Claim 36

Complex Claims 75 (1.25 hour*60 Min)

Productive hours = 7.5 hrs. (In Minutes)

= 7.5 hours*60 min

= 450 minutes

Number of Working days = 20. Total Number of Productive Minutes in Month per person = 20 days * 450 minutes = 9000 minutes

Total Claims Processed Time Needed Total Time

Simple Claim 3000 36 108000

Complex Claims 960 75 72000

Total 180000

a. Number of Workers needed = Total Time Needed / Productive time put by single worker = 180,000 / 9000 = 20 workers

b. Number of Workers 23

Standard 20

Variance, Number of Workers = 23 - 20

Variance, Number of Workers = 3

Variance, Dollar Amount = Number of Workers * $135 * 20 days

Variance, Dollar Amount = $8,100