Hospital Software sells and installs performance management software used by hospitals for…

Hospital Software sells and installs performance management software used by hospitals for patient admissions, tracking, and billing. For each client engagement, Hospital Software takes its proprietary software and modifies it for the specific demands of the client. Prior to each installation, Hospital Software estimates the number of hours of programming time that each contract will require and the cost of the programmers. Programmers record the amount of time that they spend on each engagement, and at the end of each installation, variance reports are prepared. For the Midhurst Hospital account, Hospital Software estimates the following labor standards:

After the job was completed, the following costs were reported: Junior programmer (98 hours) $2,352 Senior programmer (36 hours) $1,044

a. Calculate the labor efficiency and labor rate variances for the junior and senior programmers on the Midhurst Hospital account.

b. The manager of the project receives a bonus based on labor cost and efficiency. The bonus is adjusted (increased or decreased) by 50 percent of the total direct labor variance. What is the impact of this project on the manager’s bonus?

c. What incentives might this bonus system create?