ABC, Resource Drivers, Service Industry Glencoe Medical Clinic operates a cardio

Question

ABC, Resource Drivers, Service Industry Glencoe Medical Clinic operates a cardiology care unit and a maternity care unit. Colby Hepworth, 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 $5,908,000 per year and consisted of such items as building depreciation, building maintenance, and building utilities. The cardiology floor and the maternity floor each occupy 18,900 square feet. Hepworth determined that lodging costs would be assigned to each unit based on square feet To compute a daily rate that reflected the difference in demands, patients were placed in three categories according to illness severity, and the following annual data were collected Activity Lodging Monitoring Feeding Nursing care Cost of Activity 532,800 2,064,480 421,800 4,055,400 7,074,480 Activity Driver Patient days Monitoring hours used Patient days Nursing hours Quantity 22,200 29,920 22,200 225,300 Total The demands associated with patient severity are also provided Severity Patient Days Monitoring Hours Nursing Hours High 7,670 14,900 138,100

Explanation / Answer

Solution :-1 Daily Rate only on patient day basis To. Overhead / Patient Days (7074480/22200) $318.67 22200 Solution 2 :- Activity Overhead Activity Driver Quantity AC Rate Lodging+Feeding 954600 Patient Days 22200 43 (532800+421800)/22200 Monitoring 2064480 Monitoring Hours 29920 69 Nursing 4055400 Nursing Hours 225300 19 Rate1 43 Rate2 69 Rate3 19 Solution 3 :- Daily rates on activity driver basis Particular High Medium Low Lodging&Feeding $43 329810 481600 143190 (43*7670) (43*11200) (43*3330) Monitoring $69 1028100 823170 213210 (69*14900) (69*11930) (69*3090) Nursing $18 2485800 1305000 264600 (18*138100) (18*72500) (18*14700) Total Overhead 3843710 2609770 621000 No. of Patient Days 7670 14900 138100 Daily Rate 501.136 175.152 4.497

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