Question

The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service lines-the Emergency Room (ER) and the Operating Room (OR). SHH's current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal $300,000. The table below shows expected patient volume for both lines. Total Measure ER OR Number of patients (ER visits or OR surgeries) 1,000 1,000 2,000 Number of vital signs checks 2,000 6,000 4,000 Number of nursing hours 10,000 5,000 15,000 Required: 1. Using the current cost system, calculate the hospital-wide rate based on number of patients $ per patient 2. Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR. The nursing cost, assigned to the ER The nursing cost, assigned to the OR 3. Using the results from Requirement 2, calculate the cost per OR nursing hour under the current cost system. $ per OR hour

Answer 1

Under current cost system,

1) Hospital wide rate = Hospital annual nursing cost ÷ Total number of patients = $300,000/2,000 = $150 per patient

2) The nursing cost, assigned to the ER = Number patients for ER visits x Hospital wide rate = 1,000 x $150 = $150,000

The nursing cost, assigned to the OR = Number patients for OR visits x Hospital wide rate = 1,000 x $150 = $150,000

3) Cost per OR nursing hour = Nursing cost assigned to the OR ÷ Total nursing OR hours = $150,000/5,000 = $30 per OR hour

Under vital-signs costing system,

4) Hospital wide rate = Hospital annual nursing cost ÷ Total number of vital sign checks = $300,000/6,000 = $50 per vital signs check

5)

The vital-sings cost, assigned to the ER = Number of vital signs check for ER x Hospital wide rate = 2,000 X $50 = $100,000

The vital-sings cost, assigned to the OR = Number of vital signs check for OR x Hospital wide rate = 4,000 X $50 = $200,000

6) Cost per OR nursing hour = Nursing cost assigned to the OR ÷ Total nursing OR hours = $200,000/5,000 = $40