To compute a daily rate that reflected the difference in demands, patients were placed ir three categories according to illness severity, and the following annual data were collected: Activity Lodging Monitoring Feeding Nursing care Cost of Activity Activity Driver Quantity $2,850,000 Patient days Monitoring hours used Patient days Nursing hours 22,500 2,100,000 450,000 30,000 22,500 4,500,000 $9,900,000 225,000 Total The demands associated with patient severity are also provided: Severity Patient Days Monitoring Hours Nursing Hours High Medium 7,500 15,000 12,000 135,000 75,000 11,250 3,750 Low 3,000 15,000
ABC, Resource Drivers, Service Industry
Glencoe Medical Clinic operates a cardiology care unit and a maternity care unit. Colby Hep worth, the clinic’s administrator, is investigating the charges assigned to cardiology patients. Currently, all cardiology patients are charged the same rate per patient day for daily care services. Daily care services are broadly defined as occupancy, feeding, and nursing care. A recent study, however, revealed several interesting outcomes. First, the demands patients place on daily care services vary with the severity of the case being treated. Second, the occupancy activity is a
combination of two activities: lodging and use of monitoring equipment. Since some patients
require more monitoring than others, these activities should be separated. Third, the daily rate
should reflect the difference in demands resulting from differences in patient type. Separating the
occupancy activity into two separate activities also required the determination of the cost of each activity. Determining the costs of the monitoring activity was fairly easy because its costs were directly traceable. Lodging costs, however, are shared by two activities: lodging cardiology patients and lodging maternity care patients. The total lodging costs for the two activities were $5,700,000 per year and consisted of such items as building
Required:
1. Suppose that the costs of daily care are assigned using only patient days as the activity
driver (which is also the measure of output). Compute the daily rate using this unit-based
approach of cost assignment.
2. Compute activity rates using the given activity drivers (combine activities with the same driver).
3. Compute the charge per patient day for each patient type using the activity rates from
Requirement 2 and the demands on each activity.
4. Suppose that the product is defined as “stay and treatment” where the treatment is bypass
surgery. What additional information would you need to cost out this newly defined
product?
5. Comment on the value of activity-based costing in service industries.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 4 images
