Principles of Financial Accounting.
24th Edition
ISBN: 9781260158601
Author: Wild
Publisher: MCG
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Chapter C, Problem 5E
1)
To determine
Compute the average cost per patient.
2)
To determine
Computation of cost/driver unit.
3)
To determine
Allocation of costs to general surgery unit and computing total cost and average cost per patient.
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Regression; choosing among models. Apollo Hospital specializes in outpatient surgeries for relatively minor procedures. Apollo is a nonprofit institution and places great emphasis on controlling costs in order to provide services to the community in an efficient manner.
Apollo’s CFO, Julie Chen, has been concerned of late about the hospital’s consumption of medical supplies. To better understand the behavior of this cost, Julie consults with Rhett Bratt, the person responsible for Apollo’s cost system. After some discussion, Julie and Rhett conclude that there are two potential cost drivers for the hospital’s medical supplies costs. The first driver is the total number of procedures performed. The second is the number of patient-hours generated by Apollo. Julie and Rhett view the latter as a potentially better cost driver because the hospital does perform a variety of procedures, some more complex than others.
Rhett provides the following data relating to the past year to Julie.…
Question 1.
The Rye Village Clinic provides primary health care to local residents. For costing purposes, the clinic
classifies its departments into three operating departments (Clinic, Radiology, and Laboratory) and three
support departments (Administration, Housekeeping, and Medical Records). The allocation of
Administration costs is based on the percentage of time spent in the department. The allocation of
Housekeeping costs is based on floor space. The allocation of Medical Records cost is based on the
number of entries to patient files. For the first week of May, the department managers report the
following data:
House- Medical
Admin. keeping Records Clinic Radiology Lab. Total
Total costs
250
50
200
800
500
400
2,200
Time spent
[percentage]
10
10
20
30
20
10
100
Floor space
[square feet)
3,000 2,000 14,000
1,000
500
2,500 5,000
Entries to
patient files
500 1,500 4,500
500 2,000
Required:
(a) Allocate the three support department costs to the three operating departments using the…
Chapter C Solutions
Principles of Financial Accounting.
Ch. C - Why are overhead costs allocated to products and...Ch. C - Prob. 2DQCh. C - Prob. 3DQCh. C - What is activity-based costing? What is its goal?Ch. C - Prob. 5DQCh. C - Prob. 6DQCh. C - Prob. 7DQCh. C - Identify at least four typical cost pools for...Ch. C - Prob. 9DQCh. C - Prob. 10DQ
Ch. C - Prob. 11DQCh. C - Prob. 1QSCh. C - Prob. 2QSCh. C - Prob. 3QSCh. C - Prob. 4QSCh. C - Prob. 5QSCh. C - Prob. 6QSCh. C - Prob. 7QSCh. C - Prob. 1ECh. C - Prob. 2ECh. C - Prob. 3ECh. C - Prob. 4ECh. C - Prob. 5ECh. C - Prob. 6ECh. C - Maxlon Company manufactures custom-made furniture...Ch. C - Prob. 5APCh. C - Prob. 6APCh. C - SP 1 This serial problem began in Chapter 1 and...
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- Check image file for question Q1a. Allocate the service department costs to the two operating departments using the direct method. b.Allocate the service department cost to the two operating departments using ,I)the step-down method (Allocate administrative service first) . ii)the step down method (Allocoate Maintenance service first) c. Assuming you are the manager of the Daily Patient department.Discuss which method of cost allocation would you prefer.Justify your decision d.Mr Smith the financial controller of LabAid is convinced that the step-down method allocates more costs to the operating departments than the direct method.Do you agree with ,Mr Smith.Explain.arrow_forwardRefer to Exhibit 3–12, which portrays the three types of allocation procedures used in two-stage allocation. Give an example of each of these allocation procedures in a hospital setting. The ultimate cost object is a patient-day of hospital care. This is one day of care for one patient. (Hint: First think about the various departments in a hospital. Which departments deal directly with patients; which ones are service departments and do not deal directly with patients? What kinds of costs does a hospital incur that should be distributed among all of the hospital’s departments? Correct hospital terminology is not important here. Focus on the concepts of cost allocation portrayed in Exhibit 3–12.)arrow_forwardIdentify each responsibility center in the list below as either a service center, cost center (clinical or administrative), profit center (capitated or administrative), or investment center. Explain your choices. Radiology department that must control its own costs: Admitting department of a hospital: HMO: Stand‐alone outpatient clinic that must earn a 10 percent return on investment (ROI): Volunteer department with no budget: Development office:arrow_forward
- 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 hospitals nursing supervisor is as follows: 1. How many nurses are in the hospital? There are 101 nurses, including me. 2. Of these 100 nurses, how many are assigned to the third and fourth floors? Fifty nurses are assigned to these two floors. 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. 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. 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. 6. Do patients use any equipment? Yes. Mostly monitoring equipment. 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.arrow_forwardNorthwest Hospital is a full-service hospital that provides everything from major surgery and emergency i clinics. Required: For each of the following costs incurred at Northwest Hospital, indicate whether it would most likely be a of the specified cost object. Cost Cost Object Direct Cost or Indirect Cost Example: Catered food served to patients A particular patient Direct Cost 1. The wages of pediatric nurses The pediatric department 2. Prescription drugs 3. Heating the hospital A particular patient The pediatric department The pediatric department A particular pediatric patient 4. The salary of the head of pediatrics 5. The salary of the head of pediatrics 6. Hospital chaplain's salary A particular patient A particular patient A particular department 7. Lab tests by outside contractor 8. Lab tests by outside contractorarrow_forwardComprehensive Care Nursing Home is required by statute and regulation to maintain a minimum 3 to 1 ratio of direct service staff to residents to maintain the licensure associated with the Nursing Home beds. The salary expense associated with direct service staff for the Comprehensive Care Nursing Home would most likely be classified as: 1. Variable cost. 2. Fixed cost. 3. Overhead costs. 4. Inventoriable costs.arrow_forward
- 2.A hospital has the following cost and utilization information Overhead cost: Maintenance costs: $250,000 Cost centers: Ward: $50,000; Coronary care Unit $100,000 Utilization: Ward treats 100 patients; Coronary care unit treats 50 patients A. . What is the average cost of the Ward and Coronary care unit, ignoring overhead costs? B. If you were to allocate overhead costs to the Ward and the coronary care unit, what share would you allocate to each? Explain. C. If the Ward has 2,000 square feet of space and the coronary care unit at 10,000 square feet, calculate average costs for each unit including the appropriate allocation of overhead costs to each.arrow_forwardZamboanga Hospital plans to use the activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs: (Refer to image) Determine the activity cost associated with Patient 2. a. P1,388 b. P 908 c. P1,816 d. P4,555arrow_forwarda. Mr. Smith, the financial controller of LabAid, is convinced that the step-down method allocates more costs to the operating departments than does the direct method. Do you agree with Mr. Smith? Explain. b. Assume that you are the manager of the Daily Patient department. Discuss which method of cost allocation would you prefer. Justify your decision.arrow_forward
- Show a detailed, step by step process for the following question below: “Apollo is a local hospital that offers two types of procedures. Currently, Apollo uses a simple system to calculate the overhead cost per treatment. This is done by taking the total overhead cost and dividing it by the number of treatments. Using this method, the full cost for each procedure is shown below: Procedure X Y Direct costs per procedure £2,610 £1,560 Full cost per procedure £2,831 £1,781 Recently, another competitor has implemented activity based costing (ABC). This has led the finance director to consider whether this alternative costing technique would bring any benefits. She has obtained an analysis of Apollo’s total overheads for the last year and some additional data, all of which is shown below:” Cost Cost driver Administrative costs Administrative time per procedure £935,080 Nursing costs Length of patient stay £3,127,808 Catering…arrow_forwardShow a detailed, step by step process for the following question below: “Apollo is a local hospital that offers two types of procedures. Currently, Apollo uses a simple system to calculate the overhead cost per treatment. This is done by taking the total overhead cost and dividing it by the number of treatments. Using this method, the full cost for each procedure is shown below: Procedure X Y Direct costs per procedure £2,610 £1,560 Full cost per procedure £2,831 £1,781 Recently, another competitor has implemented activity based costing (ABC). This has led the finance director to consider whether this alternative costing technique would bring any benefits. She has obtained an analysis of Apollo’s total overheads for the last year and some additional data, all of which is shown below:” Cost Cost driver Administrative costs Administrative time per procedure £935,080 Nursing costs Length of patient stay £3,127,808 Catering…arrow_forwardpartial list of Foothills Medical Center’s costs follows:a. Cost of laundry services for operating room personnelb. Salary of intensive care personnelc. Depreciation on patient roomsd. Cost of blood testse. Nurses’ salariesf. Cost of patient mealsg. Overtime incurred in the Patient Records Department due to a computerfailureh. Operating room supplies used on patients (catheters, sutures, etc.)i. Doctor’s feej. Cost of X-ray testk. Cost of maintaining the staff and visitors’ cafeterial. Cost of drugs used for patientsm. Cost of intravenous solutions used for patientsn. Cost of improvements on the employee parking loto. Salary of the nutritionistp. General maintenance of the hospitalq. Cost of advertising hospital services on televisionr. Cost of new heart wings. Training costs for nursest. Depreciation of X-ray equipmentu. Utility costs of the hospital Instructions1. What would be Foothills Medical Center’s most logical definition for the final cost object? Explain.2. Identify whether…arrow_forward
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