Question

1. Focusing on only the inpatient care cost (i.e., ignoring operating room costs), what is the cost of a TAH (non-oncology) under each of the cost accounting systems? A tuboplasty? A TAH (oncology)? What accounts for the differences?

Croswell University Hospital This report doesn't describe where our costs are generated. We're applying one standard to all patients, regardless of their level of care. What incentive is there to identify and account for the costs of each type of procedure? Unless I have better cost information, all our attempts to control costs will focus on decreasing the number of days spent in the hospital. This limits our options. In fact, it's not even an appropriate response to senior management's mandate. The speaker was Ann Julian, MD., Chief of the Department of Obstetrics and Gynecology at Croswell University Hospital, a medium-sized tertiary care facility. After reviewing the most recent cost report for her department, Dr. Julian had some serious concerns, and was meeting with Jonathan Haskell, the Director of Fiscal Affairs, whose department had generated the report. Dr. Julian continued: Not only that, but over half the costs are not even within my control. How am I supposed to exert any influence over dietary or housekeeping, for example? I also know from experience that the cost figure the hospital is using for a simple lab test, such as a CBC, is exorbitant. And it's likely that some of the other clinical services shown on my report are too expensive as well. But I can't do anything about it! BACKGROUND Two years ago, in an effort to control rising hospital costs, Croswell's senior management had instituted spending limits, and had made each department responsible for keeping its total costs at or below the limit determined during annual budget negotiations. Ob-Gyn, like many other departments, had felt the pinch. Some years ago, Croswell had established a departmental cost accounting system, and now, with the support of its medical staff leadership, Croswell required each service chief to become involved in the hospital's budgeting process, and to take responsibility for the costs associated with the care of patients in his or her department. By involving service chiefs in the budgeting and control process, Croswell's senior management hoped to gain more control over its costs, and to improve the hospital's overall financial performance THE COST ACCOUNTING SYSTEM Croswell's cost accounting system was based on three costing units: a bedlday for inpatient care, a visit for outpatient care, and a procedure (or operation) for operating rooms. Each department was required to compute its unit costs, such as a cost-per-bed-per-day for inpatient care, and report them to senior management on a monthly basis. Senior management planned to use the information for cost comparisons, and it expected that each chief would make cross-department comparisons as part of its cost-control efforts. Under Mr. Haskell's leadership, Croswell had begun to use standard costing units for its clinical care departments (such as Ob-Gyn), and it had begun to use similar units for its clinical service departments, such as radiology, laboratory, and the pharmacy. In radiology, for example, the unit was a procedure, and Mr. Haskell's staff computed an average cost per procedure each month. The monthly radiology costs for each clinical care department then were computed by multiplying this average by the number of proce this average by the number of procedures its physicians had ordered that month. The same was true in the laboratory, where the unit was a test, and in the pharmacy, where it was a filled prescription.

Answer 1

Requirement 1
Product Finished :
Units of Finished products Manfactured		1175	Units
Requirement 2
Standard Finished product for direct material used :
Quantity of Direct materials used (A)	4900	lbs
Standard direct materials per unit of finished product (B)	4	lbs
Standard Finished product for direct material used(A/B)		1225	Units
Requirement 3
Deficiency of Finished products for materials used :
Units of Finished products Manfactured		1175
Standard Finished product for direct material used		1225
Deficiency of Finished products for materials used		50	Units
Requirement 4
Standard cost for Direct Materials :
Direct materials quantity variance—unfavorable (A)		$   1,140.00
Deficiency of Finished products for materials used (B)		50	Units
Standard cost for Direct Materials (A/B)		$        22.80