Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its “products.” The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Activity Budgeted Activity Cost Activity Base Scheduling and admitting $432,000 Number of patients Housekeeping 4,212,000 Number of patient days Nursing 5,376,000 Weighted care unit Total costs $10,020,000 Total “patient days” are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The average patient is expected to have a a little more than a four-day stay in the hospital.) During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows: Activity-Base Usage Procedure A Number of patients 280 Average length of stay x 6 days Patient days 1,680 Weighted care units 19,200 Procedure B Number of patients 650 Average length of stay x 5 days Patient days 3,250 Weighted care units 6,000 Procedure C Number of patients 1,200 Average length of stay x 4 days Patient days 4,800 Weighted care units 24,000 Private insurance reimburses the hospital for these activities at a fixed daily rate of $406 per patient day for all three procedures. Required: 1. Determine the activity rates.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter15: Introduction To Managerial Accounting

Section: Chapter Questions

Problem 4MAD

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Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its “products.” The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow:

Activity	Budgeted Activity Cost	Activity Base
Scheduling and admitting	$432,000	Number of patients
Housekeeping	4,212,000	Number of patient days
Nursing	5,376,000	Weighted care unit
Total costs	$10,020,000

Total “patient days” are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The average patient is expected to have a a little more than a four-day stay in the hospital.)

During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows:

	Activity-Base Usage
Procedure A
Number of patients	280
Average length of stay	x 6	days
Patient days	1,680
Weighted care units	19,200
Procedure B
Number of patients	650
Average length of stay	x 5	days
Patient days	3,250
Weighted care units	6,000
Procedure C
Number of patients	1,200
Average length of stay	x 4	days
Patient days	4,800
Weighted care units	24,000

Private insurance reimburses the hospital for these activities at a fixed daily rate of $406 per patient day for all three procedures.

Required:

1. Determine the activity rates.

Average length of stay
Patient days
Weighted care units
Procedure B
Number of patients
Average length of stay
Patient days
Weighted care units
Procedure C
Number of patients
Average length of stay
Patient days
Weighted care units
1. Determine the activity rates.
Activity
Scheduling and admitting
Housekeeping
x 6 days
Nursing
1,680
19,200
650
x 5 days
3,250
6,000
1,200
x 4 days
Private insurance reimburses the hospital for these activities at a fixed daily rate of $406 per patient day for all three procedures.
Required:
4,800
24,000
Activity Rate
per patient
per pd
per wcu

2. Determine the activity cost for each procedure.
Total Activity
Cost by Procedure
Activity
Procedure A
Procedure B
Procedure C
3. Determine the excess or deficiency of reimbursements to activity cost.
Excess (deficiency) of
reimbursement over
activity cost
Activity
Procedure A
Procedure B
Procedure C
4. Based on the determination of the excess or deficiency of reimbursement to activity cost, indicate which procedure cost is too high.
Hospital management has decided to further investigate the nursing effort. Determine the weighted care units per patient days for each procedure. Round to one decimal place.
weighted care units per patient day
weighted care units per patient day
weighted care units per patient day
Procedure A
Procedure B
Procedure C

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