Question

Regis Place is a health-care facility that has been allocating its overhead costs to patients based on number of patient days. The facilities overhead costs total $3,620,400 per year and the facility (which operates monthly at capacity) has a total of 60 beds available. (Assume a 360-day year.) The facility’s accountant is considering a new overhead allocation method using the following information.

Regis Place is a health-care facility that has been allocating its overhead costs to patients based on number of patient days. The facilities overhead costs total $3,620,400 per year and the facility (which operates monthly at capacity) has a total of 60 beds available. (Assume a 360-day year.) The facility?s accountant is considering a new overhead allocation method using the following information.Rooms are cleaned daily: laundry for rooms is done, on average, every other day. a. How many patient days are available at Regis Place? b.What is the overhead rate per patient day? (Round to the nearest dollar.) c. Using the individual cost drivers, what is the overhead rate for each type of cost? (Round to the nearest dollar.) d.Assume a patient stayed at Regis Place for six days. The patient was in a single room & required 30 hrs. of physical therapy. What overhead cost would be assigned to this patient under the current method of overhead allocation? What overhead cost would be assigned to this patient under the ABC method of overhead allocation? e.Assume a patient stayed at Regis Place for 6 days. The patient was in a double room & did not require any physical therapy. What overhead cost would be assigned to this patient under the current method of overhead allocation? What overhead cost would be assigned to this patient under the ABC method of overhead allocation?

Rooms are cleaned daily: laundry for rooms is done, on average, every other day.

a.       How many patient days are available at Regis Place?

b.      What is the overhead rate per patient day? (Round to the nearest dollar.)

c.       Using the individual cost drivers, what is the overhead rate for each type of cost? (Round to the nearest dollar.)

d.      Assume a patient stayed at Regis Place for six days. The patient was in a single room & required 30 hrs. of physical therapy. What overhead cost would be assigned to this patient under the current method of overhead allocation? What overhead cost would be assigned to this patient under the ABC method of overhead allocation?

e.      Assume a patient stayed at Regis Place for 6 days. The patient was in a double room & did not require any physical therapy. What overhead cost would be assigned to this patient under the current method of overhead allocation? What overhead cost would be assigned to this patient under the ABC method of overhead allocation?

Answer 1

How many patient days are available at Regis Place?
360 x 60 = 21,600 patient days

What is the overhead rate per patient day? (Round to the nearest dollar.)
$3,620,400 / 21,600 = $168

Using the individual cost drivers, what is the overhead rate for each type of cost? (Round to the nearest dollar.)
_________________________________________________________
Activity                   Cost       Driver                           Rate
Rooms(Dep. etc.) $504,000    # of rooms                     $40
                                          (504,000 / 360)/35
Laundary              $151,200    # of beds                        $7
                                           151,200/21,600
Nursing Care      $1,314,000    # of nurse-hours annually $30
                                               $1,314,000 / 43,800
Physical Therapy   $960,000     # of hours of Rehab         $1,200       
                                             $960,000 / 800
General Services   $691,200      # of patient days              $32  
                                             $691,200 / 21,600
___________________________________________________________
Assume a patient stayed at Regis Place for six days. The patient was in a single room & required 30 hrs. of physical therapy.
What overhead cost would be assigned to this patient under the current method of overhead allocation?
     $168 x 6 days = $1,008

What cost would be assigned to this patient under the ABC method of overhead allocation?
Room                     $40 x 6      =        $240
  Laundary                 $7 x 6       =         $42
Nursing   $1,314,000x6/21,600  =        $365
Physical Therapy   $1,200 x 30  =    $36,000
(check Rehb. hours 800 or 8,000)
General Services     $32 x 6       =       $192
Total                                           $36,839
                                                   =======
Assume a patient stayed at Regis Place for 6 days. The patient was in a double room & did not require any physical therapy.

What overhead cost would be assigned to this patient under the current method of overhead allocation?
     $168 x 6 days = $1,008

What overhead cost would be assigned to this patient under the ABC method of overhead allocation?
Room                     $20 x 6      =        $120
  Laundary                 $7 x 6       =         $42
Nursing   $1,314,000x6/21,600  =        $365
  General Services     $32 x 6       =       $192
Total                                                $719
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