Identify each responsibility center in the list below as either a service center, cost center (clinical or administrative), profit center (capitated or administrative), or investment center. Explain your choices. Radiology department that must control its own costs: Admitting department of a hospital: HMO: Stand‐alone outpatient clinic that must earn a 10 percent return on investment (ROI): Volunteer department with no budget: Development office:

Identify each responsibility center in the list below as either a service center, cost center (clinical or administrative), profit center (capitated or administrative), or investment center. Explain your choices. Radiology department that must control its own costs: Admitting department of a hospital: HMO: Stand‐alone outpatient clinic that must earn a 10 percent return on investment (ROI): Volunteer department with no budget: Development office:

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

Problem 3MTC

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The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service linesthe Emergency Room (ER) and the Operating Room (OR). SHHs current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal 300,000. The table below shows expected patient volume for both lines. After discussion with several experienced nurses, Jack Bauer (SHHs accountant) decided that assigning nursing costs to the two service lines based on the number of times that nurses must check patients vital signs might more closely match the underlying use of costly hospital resources. Therefore, for comparative purposes, Jack decided to develop a second cost system that assigns total nursing costs to the ER and OR based on the number of times nurses check patients vital signs. This system is referred to as the vital-signs costing system. The earlier table also shows data for vital signs checks for lines. Calculate the amount of nursing costs that the vital-signs costing system assigns to the ER and to the OR.
The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service linesthe Emergency Room (ER) and the Operating Room (OR). SHHs current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal 300,000. The table below shows expected patient volume for both lines. Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR.
The Audiology Department at Randall Clinic offers many services to the clinic’s patients. The three most common, along with cost and utilization data, are as follows: Service Variable cost per service Annual Direct fixed Cost Annual number of visits Basic examination $5 $50,000 30,000 Advanced examination 7 30,000 1,500 Therapy section 10 40,000 500 What is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed costs? Assume that the Audiology Department is allocated $100,000 in total overhead by the clinic, and the department director has allocated $50,000 of this amount to the three services listed above. What is the fee schedule assuming that these overhead costs must be covered? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of number of visits.) Assume that these services must make a combined profit of $25,000. Now, what is the…
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Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Direct Costs Square Feet Laundry Pounds Housekeeping (HK) $ 80,000 - 16,000 Laundry $ 132,000 500 - Revenue Areas: Surgery $ 400,000 1,500 48,000 Semiprivate rooms $ 200,000 2,000 24,000 Maternity $ 150,000 1,000 12,000 The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.Required:Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue…
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Outpatient Surgery is developing an RVU and product cost for the following surgical procedures, given the projected volumes and samples direct costs. Projected total costs for the Outpatient Surgery department are $20 million ($12 million in direct costs and $8 million in indirect costs). Use the steps provided in your textbook to Calculate the cost per procedure using job-order costing. Procedure Projected Volumes Labor Expense Supply Expense Subcutaneous Tissue Debridement 2,000 $100 $90 Esophagastroduodeno with Biopsy 4,000 $150 $60 Aspiration/Injection of a Joint 8,000 $75 $30 Colonoscopy 10,400 $110 $20 Next, Outpatient Surgery wants to add a cost driver to better represent the causal relationship of their indirect costs to produce a more accurate cost-per-procedure. Using the steps in your textbook assign costs to each procedure using the following information. Procedure Equipment Use (min.) Subcutaneous Tissue Debridement 10 Esophagastroduodeno with…
Outpatient Surgery is developing an RVU and product cost for the following surgical procedures, given the projected volumes and samples direct costs. Projected total costs for the Outpatient Surgery department are $20 million ($12 million in direct costs and $8 million in indirect costs). Use the steps provided in your textbook to Calculate the cost per procedure using job-order costing. Procedure Projected Volumes Labor Expense Supply Expense Subcutaneous Tissue Debridement 2,000 $100 $90 Esophagastroduodeno with Biopsy 4,000 $150 $60 Aspiration/Injection of a Joint 8,000 $75 $30 Colonoscopy 10,400 $110 $20 Stage 1: Calculate the RVU for each procedure (Show your work): Stage 2: Calculate the total cost for each procedure (Show your work): Next, Outpatient Surgery wants to add a cost driver to better represent the causal relationship of their indirect costs to produce a more accurate cost-per-procedure. Using the steps in your textbook assign costs to each procedure…
Show a detailed, step by step process for the following question below: “Apollo is a local hospital that offers two types of procedures. Currently, Apollo uses a simple system to calculate the overhead cost per treatment. This is done by taking the total overhead cost and dividing it by the number of treatments. Using this method, the full cost for each procedure is shown below: Procedure X Y Direct costs per procedure £2,610 £1,560 Full cost per procedure £2,831 £1,781 Recently, another competitor has implemented activity based costing (ABC). This has led the finance director to consider whether this alternative costing technique would bring any benefits. She has obtained an analysis of Apollo’s total overheads for the last year and some additional data, all of which is shown below:” Cost Cost driver Administrative costs Administrative time per procedure £935,080 Nursing costs Length of patient stay £3,127,808 Catering…
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