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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Formation of an Activity Dictionary

A hospital is in the process of implementing an ABC system. A pilot study is being done to assess the effects of the costing changes on specific products. Of particular interest is the cost of caring for patients who receive in-patient recovery treatment for illness, surgery (noncardiac), and injury. These patients are housed on the third and fourth floors of the hospital. The floors are dedicated to patient care and have only nursing stations and patient rooms. A partial transcript of an interview with the hospital’s nursing supervisor is as follows:

  1. 1. How many nurses are in the hospital?

  There are 101 nurses, including me.

  1. 2. Of these 100 nurses, how many are assigned to the third and fourth floors?

    Fifty nurses are assigned to these two floors.

  2. 3. What do these nurses do (please describe)?

    Provide nursing care for patients, which, as you know, means answering questions, changing bandages, administering medicine, changing clothes, etc.

  3. 4. And what do you do?

    I supervise and coordinate all the nursing activity in the hospital. This includes surgery, maternity, the emergency room, and the two floors you mentioned.

  4. 5. What other lodging and care activities are done for the third and fourth floors by persons other than the nurses?

    The patients must be fed. The hospital cafeteria delivers meals. The laundry department picks up dirty clothing and bedding once each shift. The floors also have a physical therapist assigned to provide care on a physician-directed basis.

  5. 6. Do patients use any equipment?

  Yes. Mostly monitoring equipment.

  1. 7. Who or what uses the activity output?

    Patients. But there are different kinds of patients. On these two floors, we classify patients into three categories according to severity: intensive care, intermediate care, and normal care. The more severe the illness, the more activity is used. Nurses spend much more time with intermediate care patients than with normal care. The more severe patients tend to use more of the laundry service as well. Their clothing and bedding need to be changed more frequently. On the other hand, severe patients use less food. They eat fewer meals. Typically, we measure each patient type by the number of days of hospital stay. And you have to realize that the same patient contributes to each type of product.

Required:

Prepare an activity dictionary with three categories: activity name, activity description, and activity driver.

To determine

Draw a table of an activity dictionary with three categories that are, activity name, activity description and activity driver.

Explanation

Activity Based Costing (ABC):

Activity based costing is an apportionment of costs that first considers the activity drivers that helps in the allocation of costs to various activities and then allocates costs to different cost objects by using the drivers.

Serial NumberActivity nameDescriptionDriver
1.Providing nursing careSatisfying the patients needsNursing hours
2.Supervising nursesCoordinate the activities of nursesNumber of nurses
3...

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