TASK SEVEN ABC, health care. Crosstown Health Center runs two programs: drug addict rehabilitation and after care (counseling and support of patients after release from a mental hospital). The center’s budget for 2017 follows. Professional salaries: 4 physicians * $150,000 $600,000 12 psychologists * $75,000 900,000 16 nurses * $30,000 480,000 $1,980,000 Medical supplies 242,000 Rent and clinic maintenance 138,600 Administrative costs to manage patient charts, food, laundry 484,000 Laboratory services 92,400 Total $2,937,000 Kim Yu, the director of the center, is keen on determining the cost of each program. Yu compiles the following data describing employee allocations to individual programs: Drug Aftercare Total Employees Physicians 4 4 Psychologists 4 8 12 Nurses 6 10 16 Yu has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, Gus Gates, how she should apply this technique. Gates obtains the following budgeted information Drug Aftercare Total Square feet of space occupied by each program 9,000 12,000 21,000 Patient-years of service 50 60 110 Number of laboratory tests 1400 700 2,100 Required: a. Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the budgeted indirect cost rates for medical supplies; rent and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services. Using an activity-based costing approach to cost analysis, calculate the budgeted cost of each program and the budgeted cost per patient-year of the drug program. c. What benefits can Crosstown Health Center obtain by implementing the ABC system? What factors, other than cost, do you think Crosstown Health Center should consider in allocating resources to its programs? 5-40 Unused capacity, activity-based costing, activity-based
TASK SEVEN
ABC, health care. Crosstown Health Center runs two programs: drug addict rehabilitation and after care (counseling and support of patients after release from a mental hospital). The center’s budget for 2017 follows.
Professional salaries:
4 physicians * $150,000 $600,000
12 psychologists * $75,000 900,000
16 nurses * $30,000 480,000 $1,980,000
Medical supplies 242,000
Rent and clinic maintenance 138,600
Administrative costs to manage patient charts, food, laundry 484,000
Laboratory services 92,400
Total $2,937,000
Kim Yu, the director of the center, is keen on determining the cost of each program. Yu compiles the following data describing employee allocations to individual programs:
Drug Aftercare Total Employees Physicians 4 4
Psychologists 4 8 12
Nurses 6 10 16
Yu has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, Gus Gates, how she should apply this technique. Gates obtains the following budgeted information
Drug Aftercare Total
Square feet of space occupied by each program 9,000 12,000 21,000 Patient-years of service 50 60 110 Number of laboratory tests 1400 700 2,100
Required:
- a. Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the budgeted indirect cost rates for medical supplies; rent and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services.
- Using an activity-based costing approach to cost analysis, calculate the budgeted cost of each program and the budgeted cost per patient-year of the drug program. c. What benefits can Crosstown Health Center obtain by implementing the ABC system?
- What factors, other than cost, do you think Crosstown Health Center should consider in allocating resources to its programs? 5-40 Unused capacity, activity-based costing, activity-based
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