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The Bienestar Cardiology Clinic has two major activities: diagnostic and treatment. The two activities use four resources: nursing, medical technicians, cardiologists, and equipment. Detailed interviews have provided the work distribution matrix shown below. The total time estimated corresponds to practical capacity (interviewers adjusted the total time to about 80 percent of the available time). The equipment time is measured in machine hours. Thus, the total time (at practical capacity) in the system is 20,000 hours. In considering the implementation of a TDABC model, the following unit times and transaction information are also provided: Required: 1. Calculate the cost of each activity using the indicated values of the resource drivers. 2. Calculate the capacity cost rate for TDABC. Using the capacity cost rate, calculate the cost of each activity under TDABC. Compare these values with those obtained in Requirement 1 and discuss possible reasons for any differences. 3. Suppose that the actual activity driver quantities are 3,500 and 9,000. Calculate the cost of unused capacity. 4. Suppose that the clinic acquires new equipment that reduces the total time required for the two activities from 6,000 to 4,000 hours. The equipment cost remains the same. Explain how the ABC system would be updated and then describe how TDABC would provide updates. 5. Suppose that diagnosing patients without any cardiac disease takes two hours while diagnosing patients with mildly diseased hearts takes an additional 1.5 hours and those with more severe problems takes an additional two hours. Prepare a time equation and, using the capacity cost rate from Requirement 2, calculate the activity rate for each of the three types of patients.

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 4, Problem 35P
Textbook Problem
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The Bienestar Cardiology Clinic has two major activities: diagnostic and treatment. The two activities use four resources: nursing, medical technicians, cardiologists, and equipment. Detailed interviews have provided the work distribution matrix shown below.

Chapter 4, Problem 35P, The Bienestar Cardiology Clinic has two major activities: diagnostic and treatment. The two , example  1

The total time estimated corresponds to practical capacity (interviewers adjusted the total time to about 80 percent of the available time). The equipment time is measured in machine hours. Thus, the total time (at practical capacity) in the system is 20,000 hours. In considering the implementation of a TDABC model, the following unit times and transaction information are also provided:

Chapter 4, Problem 35P, The Bienestar Cardiology Clinic has two major activities: diagnostic and treatment. The two , example  2

Required:

  1. 1. Calculate the cost of each activity using the indicated values of the resource drivers.
  2. 2. Calculate the capacity cost rate for TDABC. Using the capacity cost rate, calculate the cost of each activity under TDABC. Compare these values with those obtained in Requirement 1 and discuss possible reasons for any differences.
  3. 3. Suppose that the actual activity driver quantities are 3,500 and 9,000. Calculate the cost of unused capacity.
  4. 4. Suppose that the clinic acquires new equipment that reduces the total time required for the two activities from 6,000 to 4,000 hours. The equipment cost remains the same. Explain how the ABC system would be updated and then describe how TDABC would provide updates.
  5. 5. Suppose that diagnosing patients without any cardiac disease takes two hours while diagnosing patients with mildly diseased hearts takes an additional 1.5 hours and those with more severe problems takes an additional two hours. Prepare a time equation and, using the capacity cost rate from Requirement 2, calculate the activity rate for each of the three types of patients.

1.

To determine

Compute the cost of each activity by using the values that are indicated for resource drivers of B Clinic.

Explanation of Solution

Capacity cost rate: A capacity cost is a cost incurred by a company to enhance their business capacity and operations above a certain level. Capacity cost rate is calculated using the following formula.

Capacity cost rate=Total activity costTotal acticity time Activity cost= Capacity cost rate×Unit time per activity×Number of patients=$40×3×4,000=$480,000

Compute the cost of diagnosing activity by using the indicated values of resource drivers.

Resource

Cost

($)

Consumption ratio

Diagnosing

($)

 (a)(b)(a)×(b)
Nursing80,000

2.

To determine

Compute the capacity cost rate of B Clinic for all activities.

3.

To determine

Compute the cost of unused capacity if the actual activity driver quantities are 3,500 and 9,000.

4.

To determine

Assume the clinic acquires new equipment that can reduce total time for the two activities from 6,000 to 4,000 hours and if equipment cost remained the same, describe the manner in which activity based costing would be updated and explain how time driven activity based costing can provide the updates.

5.

To determine

Construct a time equation and compute the activity rate for reach type of patients using the capacity cost rate assuming diagnosing patients without any cardiac disease takes two hours while diagnosing patients with mildly diseased heart attacks takes an additional 1.5 hours and those with more severe problems takes additional two hours.

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Chapter 4 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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Ch. 4 - Identify and define two types of activity drivers.Ch. 4 - What are unit-level activities? Batch-level...Ch. 4 - How does TDABC simplify ABC?Ch. 4 - Explain why it is easy to update a TDABC model.Ch. 4 - Describe two ways to reduce a complex ABC system....Ch. 4 - Seco, Inc., produces two types of clothes dryers:...Ch. 4 - Warner Company has the following data for the past...Ch. 4 - Lansing. Inc., provided the following data for its...Ch. 4 - Larsen, Inc., produces two types of electronic...Ch. 4 - Roberts Company produces two weed eaters: basic...Ch. 4 - Golding Bank provided the following data about its...Ch. 4 - Golding Bank provided the following data about its...Ch. 4 - Electan Company produces two types of printers....Ch. 4 - Patterson Company produces wafers for integrated...Ch. 4 - Selected activities and other information are...Ch. 4 - Ripley, Inc., costs products using a normal...Ch. 4 - Predetermined Overhead Rate, Application of...Ch. 4 - Craig Company uses a predetermined overhead rate...Ch. 4 - Departmental Overhead Rates Mariposa, Inc.,...Ch. 4 - McCourt Company produces two types of leather...Ch. 4 - Deoro Company has identified the following...Ch. 4 - Golding Bank is in the process of implementing an...Ch. 4 - Secondary Activities Refer to the interview in...Ch. 4 - Bob Randall, cost accounting manager for Hemple...Ch. 4 - Calzado Company produces leather shoes in batches....Ch. 4 - Bob Randall, cost accounting manager for Hemple...Ch. 4 - Silven Company has identified the following...Ch. 4 - Silven Company has identified the following...Ch. 4 - Gee Manufacturing produces two models of camshafts...Ch. 4 - Cushing, Inc., costs products using a normal...Ch. 4 - Nonunit-level drivers are prominent in...Ch. 4 - Plata Company has identified the following...Ch. 4 - Assume that the inspection activity has an...Ch. 4 - Consider the information given on two products and...Ch. 4 - Primera Company produces two products and uses a...Ch. 4 - Fisico Company produces exercise bikes. One of its...Ch. 4 - Glencoe Medical Clinic operates a cardiology care...Ch. 4 - Glencoe First National Bank operated for years...Ch. 4 - Autotech Manufacturing is engaged in the...Ch. 4 - The Bienestar Cardiology Clinic has two major...Ch. 4 - Reducir, Inc., produces two different types of...Ch. 4 - Refer to the data given in Problem 4.36 and...Ch. 4 - Escuha Company produces two type of calculators:...

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