Question

OBJECTIVE 1 2 EXCEL Exercise 5-40 Activity-Based Product Costing Suppose that a surgical ward has gathered the following information for tour nursing ati and two types of patients: Patient Category Driver Normal Intensive Activity Rate Treating patients Treatments 6,400 8,000 $ 4.00 Providing hygienic care Hygienic hours 4,800 17,600 5.00 Responding to requests Requests 32,000 80,000 2.00 Monitoring patients Monitoring hours 6,000 72,000 3.00 Required: 1. Determine the total nursing costs assigned to each patient category. 2. Output is measured in patient days. Assuming that the normal patient category uses 8,000 patient days and the intensive patient category uses 6,400 patient days, calculate the nursing cost per patient day for each type of patient. (Round to two decimal places 3. CONCEPTUAL CONNECTION The supervisor of the surgical ward has suggested that patient days is the only driver needed to assign nursing costs to each type of patient Calculate the charge per patient day (rounded to the nearest cent) using this approach then explain to the supervisor why this would be a bad decision. OBIECTE

Answer 1

Activity based costing is an apportionment of cost that first considers the activity drivers that helps in allocation of cost to various activities and then allocates cost to different cost objects by using the drivers.

1.

Activity	Rate (R )	Quantity (Q)		Normal (R X Q1)       $	Intensive (R X Q2)       $
		Normal (Q1)	Intensive (Q2)
Treating Patients	4	6,400.00	8,000.00	25,600.00	32,000.00
Providing hygenic care	5	4,800.00	17,600.00	24,000.00	88,000.00
Responding to request	2	32,000.00	80,000.00	64,000.00	1,60,000.00
Monitoring patients	3	6,000.00	72,000.00	18,000.00	2,16,000.00
Total Nursing Cost				1,31,600.00	4,96,000.00

2.

Total Nursing Cost		Total patient day		Nursing cost per patient
Normal (NC)	Intensive (IC)	Normal (ND)	Intensive (ID)	Normal (NC)/(ND) $	Intensive (IC)/(ID) $
1,31,600.00	4,96,000.00	8000	6400	16.45	77.50

3.

Activity	Normal Activity Cost $ (NC)	Intensive Activity Cost $ (IC)	Patient Day		Normal Activity cost /charge per patient day (NC)/NP $	IntensiveActivity cost /Charge per patient day (NC)/NP $
			Normal (NP)	Intensive (IP)
Treating Patients	25,600.00	32,000.00	8000	6400	3.20	5.00
Providing hygenic care	24,000.00	88,000.00	8000	6400	3.00	13.75
Responding to request	64,000.00	1,60,000.00	8000	6400	8.00	25.00
Monitoring patients	18,000.00	2,16,000.00	8000	6400	2.25	33.75

It is being bad approach as the activity cost per patient day differs with the activity rate charged per patient .