Question

Product Costing and Decision Analysis for a Service Company Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant stay offers a variety of medical procedures (operation) that are considered as products. The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Activity Scheduling and admitting Housekeeping Budgeted Activity Cost Activity Base $432,000 Number of patients 4,212,000 Number of patient days 5,376,000 Weighted care unit $10,020,000 Nursing Total costs Total patient days" are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192.000 weighted care units estimated for the year. In addition, pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. The average patient is expected to have a little more than a four-day stay in the hospital) During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows: Activity-Base Usage Procedure A Number of patients 280 Average length of stay x6 days 1,680 Patient days +

Answer 1

Requirement 1 Activity Rates Particulars Scheduling and Admitting Housekeeping Nursing Total Cost Activity Cost $ 432,000 $ 4,212,000 $ 5,376,000 $ 10,020,000 Driver Quantity 6,000 Patients 27,000 Patient Days 192,000 WCUS $ $ $ Activity Rates 72 Per Patient 156 Per Patient - Day 28 Per WCU Requirement 2 | Total Cost per Procedure Procedure A: Particulars Scheduling and Admitting Housekeeping Nursing Total Cost Activity Rates 72 Per Patient 156 Per Patient - Day 28 Per WCU Driver Quantity 280 Patients 1,680 Patient Days 19,200 WCUS $ $ $ $ $ $ Cost 20,160 262,080 537,600 819,840 Procedure B: Particulars Scheduling and Admitting Housekeeping Nursing Total Cost $ $ $ Activity Rates 72 Per Patient 156 Per Patient - Day 28 Per WCU Driver Quantity 650 Patients 3,250 Patient Days 6,000 WCUS $ $ $ $ Cost 46,800 507,000 168,000 721,800 Procedure C: Particulars Scheduling and Admitting Housekeeping Nursing Total Cost | Atos Activity Rates 72 Per Patient 156 Per Patient - Day 28 Per WCU Driver Quantity 1,200 Patients 4,800 Patient Days 24,000 WCUS $ $ $ $ Cost 86,400 748,800 672,000 1,507,200

Requirement 3 | Excess / (Deficiency) of Reimbursement Particulars Procedure A Procedure B Procedure C Patient Days 1,680 3,250 4,800 Fixed Daily Rate $ 406 $ 406 $ 406 Reimbursement $ 682,080 $ 1,319,500 $ 1,948,800 Less : Activity Cost $ 819,840 $ 721,800 $ 1,507,200 Excess / (Deficiency) $ (137,760) $ 597,700 $ 441,600 Requirement 4 Procedure A has the Highest Cost. Requirement 5 Particulars Procedure A Weighted Care Units 19,200 Patient Days 1,680 Weighted Care Units per Patient Day $ 11.43 Procedure B Procedure C 6,000 24,000 3,250 4,800 1.85 $ 5.00 $