Rose is a senior living community that offers a full range of services including
ID: 2566774 • Letter: R
Question
Rose is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care. The
assisted living division provides residential space, meals, and medical services (MS) to its residents. The current costing system adds the cost of
all of these services (space, meals, and MS) and divides by total resident days to get a cost per resident day for each month. Recognizing that
MS tends to vary significantly among the residents, Rose's accountant recommended that an ABC system be designed to calculate more
accurately the cost of MS provided to residents. She decided that residents should be classified into four categories (A, B, C, D) based on the
level of services received, with group A representing the lowest level of service and D representing the highest level of service. Two cost drivers
being considered for measuring MS costs are number of assistance calls and number of assistant contacts. A contact is registered each time an
assistance professional provides medical services or aid to a resident. The accountant has gathered the following data for the most recent
Resident Annual Resident Days
Classification Annual Assistance Number of Assistance Contacts
A 7,700 1 2,000 5 2,000
B 5,600 2 0,000 4 8,000
C 3,300 2 4,000 4 8,000
D 1,900 3 0,000 4 8,000
18,500 8 6,000 1 96,000
Other data:
The cost of medical services for the period $ 2,479,400
The cost of meals and residential space $ 1,350,500
Required:
A. Determine the ABC cost of a resident day for each category of residents using assistance hours as the cost driver.
B. Determine the ABC cost of a resident day for each category of residents using the assistance contracts as the cost driver.
C. Which cost driver do you think provides the more accurate measure of the cost per day for a Rose resident?
Explanation / Answer
A. ABC cost of a resident day for each category of residents using assistance hours as the cost driver Classification MS costs based on Annual Assistance hrs. Cost of space & meals based on resident days Total costs Annual resident days Total cost/Resident day A 12000/86000*2479400= 345963 7700/18500*1350500= 562100 908063 7700 117.93 B 20000/86000*2479400= 576605 5600/18500*1350500= 408800 985405 5600 175.97 C 24000/86000*2479400= 691926 3300/18500*1350500= 240900 932826 3300 282.67 D 30000/86000*2479400= 864907 1900/18500*1350500= 138700 1003607 1900 528.21 2479400 1350500 3829900 18500 207.02 B. ABC cost of a resident day for each category of residents using the assistance contracts as the cost driver Classification MS costs based on Annual Assistance Contracts Cost of space & meals based on resident days Total costs Annual resident days Total cost/Resident day A 52000/196000*2479400= 657800 7700/18500*1350500= 562100 1219900 7700 158.43 B 48000/196000*2479400= 607200 5600/18500*1350500= 408800 1016000 5600 181.43 C 48000/196000*2479400= 607200 3300/18500*1350500= 240900 848100 3300 257.00 D 48000/196000*2479400= 607200 1900/18500*1350500= 138700 745900 1900 392.58 2479400 1350500 3829900 18500 207.02 C. Basing MS costs on the assistance hours give more accurate measuremet of cost /day as hours spent are more detailed than just no.of contracts
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