I am stuck on question 2. Activity Costing, Assigning Resource Costs, Primary an
ID: 2449709 • Letter: I
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I am stuck on question 2.
Activity Costing, Assigning Resource Costs, Primary and Secondary Activities
Elmo Clinic has identified three activities for daily maternity care: occupancy and feeding, nursing, and nursing supervision. The nursing supervisor oversees 150 nurses, 25 of whom are maternity nurses (the other nurses are located in other care areas such as the emergency room and intensive care). The nursing supervisor has three assistants, a secretary, several offices, computers, phones, and furniture. The three assistants spend 75% of their time on the supervising activity and 25% of their time as surgical nurses. They each receive a salary of $60,000. The nursing supervisor has a salary of $80,000. She spends 100% of her time supervising. The secretary receives a salary of $35,000 per year. Other costs directly traceable to the supervisory activity (depreciation, utilities, phone, etc.) average $170,000 per year.
Daily care output is measured as "patient days." The clinic has traditionally assigned the cost of daily care by using a daily rate (a rate per patient day). Daily rates can differ between units, but within units the daily rates are the same for all patients. Under the traditional approach, the daily rate is computed by dividing the annual costs of occupancy and feeding, nursing, and a share of supervision by the unit's capacity expressed in patient days. The cost of supervision is assigned to each care area based on the number of nurses. A single driver (patient days) is used to assign the costs of daily care to each patient.
A pilot study has revealed that the demands for nursing care vary within the maternity unit, depending on the severity of a patient's case. Assume that the maternity unit has three levels of increasing severity: normal patients, cesarean patients, and patients with complications. The pilot study provided the following activity and cost information:
The pilot study also revealed the following information concerning the three types of patients and their annual demands:
Required:
1. Calculate the cost per patient day by using a functional-based approach.
$ per patient day
2. Calculate the cost per patient day by using an activity-based approach. (Round rates and unit cost to two decimal places.)
Activity Annual Cost Activity Driver Annual Quantity Occupancy and feeding $1,500,000 Patient days 10,000 Nursing care (maternity) 1,200,000 Hours of nursing care 50,000 Nursing supervision ? Number of nurses 150Explanation / Answer
Answer 1. Cost of Supervision Salary of Supervisor (Direct) 80000 Salary of Assistants ($60000 X 3 X .75) 135000 Salary of Secretary (Direct) 35000 Other Costs 170000 Total 420000 Cost of Nursing Supervison = 70000 420000*25/150 Calculation of Total Cost of Care Occupancy & Feeding 1500000 Nursing Care (maternity) 1200000 Nursing Supervison 70000 Total Cost of care 2770000 Cost per patient day = 2770000 / 10000 = $277 per day Answer 2. First, the cost of the secondary activity (supervision) must be assigned to the primary activities (various nursing care activities) that consume it (the driver is the number of nurses): Maternity nursing care assignment = 25/150 X 420000 = 70000 Thus, the total cost of nursing care = 1200000 + 70000 = 1270000 Next, calculate the activity rates for the two primary activities Occupancy and feeding = 1500000 / 10000 = 150 per day Nursing care = 1270000 / 50000 = 25.40 per nursing hour Cost per patient day Normal $213.50 {(150 x 7000)+ (17500 X 25.40)}/7000 Cesarean $308.75 {(150 x 2000)+ (12500 X 25.40)}/2000 Complications $658.00 {(150 x 1000)+ (20000 X 25.40)}/1000
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