Need help using ABC product costing model. Grand Haven is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care.  The asssited living division provides residential space, meals, and medical services (MS) to its residents.  The current costing system adds the cost of all of these services (space, meals, and MS) and divides by total resident days to get a cost per resident day for each month.  Recognizing that MS tends to vary significantly among the residents, Grant Haven's accountant recommended that an ABC system be designed to calculate more accurated the cost of MS provided to residents.  She decided that residents should be classified into four categories (A, B, C, D) based on the level of services received, with group A representing the lowest level of services and D representing the highest level of service.  Two cost drivers being considered for measuring MS costs are number of assistance calls and number of assistant contacts.  A contact is registered each time an assistance professional provides medical services or aid to a resident.  The accountnat has gathered the following data for the most recent annual period:Residential ClassificationAnnual Resident DayAnnual Assistance HoursNumber of Assistance ContactsA8,76015,00060,000B6,57020,00052,000C4,38022,50052,000D2,19032,50052,000     Total21,90090,000216,000Other data:Total cost of medical services for the period$5,000,000Total cost of meals and residential space$3,280,000Problems:a) Determine the ABC cost of a resident day for each category of residents using assistance hours as the cost driver.b) Determine the ABC cost of a resident day for each category of residents using assistant contacts as the cost driver.c) Which cost driver do you think provides the more accurate measure of the cost per day for a Grand Haven resident?

Question
Asked Sep 1, 2019
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Need help using ABC product costing model.

 

Grand Haven is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care.  The asssited living division provides residential space, meals, and medical services (MS) to its residents.  The current costing system adds the cost of all of these services (space, meals, and MS) and divides by total resident days to get a cost per resident day for each month.  Recognizing that MS tends to vary significantly among the residents, Grant Haven's accountant recommended that an ABC system be designed to calculate more accurated the cost of MS provided to residents.  She decided that residents should be classified into four categories (A, B, C, D) based on the level of services received, with group A representing the lowest level of services and D representing the highest level of service.  Two cost drivers being considered for measuring MS costs are number of assistance calls and number of assistant contacts.  A contact is registered each time an assistance professional provides medical services or aid to a resident.  The accountnat has gathered the following data for the most recent annual period:

Residential Classification Annual Resident Day Annual Assistance Hours Number of Assistance Contacts
A 8,760 15,000 60,000
B 6,570 20,000 52,000
C 4,380 22,500 52,000
D 2,190 32,500 52,000
     Total 21,900 90,000 216,000

Other data:

Total cost of medical services for the period $5,000,000
Total cost of meals and residential space $3,280,000

Problems:

a) Determine the ABC cost of a resident day for each category of residents using assistance hours as the cost driver.

b) Determine the ABC cost of a resident day for each category of residents using assistant contacts as the cost driver.

c) Which cost driver do you think provides the more accurate measure of the cost per day for a Grand Haven resident?

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Expert Answer

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Step 1
Problem -la)
Meal and residential space cost dor each resident day
uill be calulated
Jollau
as
Cost per esident day = Total Cost ef meal and
residantial space
Annual resident days
$3,280,000
21,900
149.77 per day
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Problem -la) Meal and residential space cost dor each resident day uill be calulated Jollau as Cost per esident day = Total Cost ef meal and residantial space Annual resident days $3,280,000 21,900 149.77 per day

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Step 2
Medical deuuice cost ber asistance howe uill be
Calculated as
Cast per asis tance howr Total Cost of medical
seocu ces
Annual assidtance hours
5,000, 000
90,000
55. 55
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Medical deuuice cost ber asistance howe uill be Calculated as Cast per asis tance howr Total Cost of medical seocu ces Annual assidtance hours 5,000, 000 90,000 55. 55

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Step 3
Now, equred Cast uull be calculated as follous
Resident Medical Annual Cost of Annuai Cat of MedicalTotal
wice asistance
ber
assis tance hauu
hour (1)(2)
A
Mesident medical and resid
&eruice ential last Cast
per Aoy per d (5t6)
13+4 6)
vwicu)days
C1X2)3 (4)
55.55 15,000 833250 8,160 95.12 14.77 244.89
55.55 20,000 000 6,570
161.10 144.77 318.87
B
55.55 22,5001241875 4,380 285,36141.17
55.55 32,5001805375| 2,140 824.37 144.77 .
435.13
D
90,000
To tal
21,100
fresidants i
Thuore, cost for each category
Total Cost ($)
Resident
244.89
A -
318. 87
B
435. 13
414.14
D
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Now, equred Cast uull be calculated as follous Resident Medical Annual Cost of Annuai Cat of MedicalTotal wice asistance ber assis tance hauu hour (1)(2) A Mesident medical and resid &eruice ential last Cast per Aoy per d (5t6) 13+4 6) vwicu)days C1X2)3 (4) 55.55 15,000 833250 8,160 95.12 14.77 244.89 55.55 20,000 000 6,570 161.10 144.77 318.87 B 55.55 22,5001241875 4,380 285,36141.17 55.55 32,5001805375| 2,140 824.37 144.77 . 435.13 D 90,000 To tal 21,100 fresidants i Thuore, cost for each category Total Cost ($) Resident 244.89 A - 318. 87 B 435. 13 414.14 D

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