Question

Glencoe Medical Clinic operates a cardiology care unit and a maternity care unit. Colby Hepworth, the dinic's administrator, is investigating the charges assigned to cardiology patients. Currently, all cardiology patients are charged the same rate per patient day for daily care services. Daily care services are broadly defined as occupancy, feeding, and nursing care. A recent study, however, revealed several Interesting outcomes. First, the demands patients place on daily care services vary with the severity of the case being treated. Second, the occupancy activity is a combination of two activities: lodging and use of monitoring equipment. Since some patients require more monitoring than others, these activities should be separated. Third, the daily rate should reflect the difference in demands resulting from differences in patient type. Separating the occupancy activity into two separate activities also required the determination of the cost of each activity. Determining the costs of the monitoring activity was fairly easy because its costs were directly traceable. Lodging costs, however, are shared by two activities: lodging cardiology patients and lodging maternity care patients. The total lodging costs for the two activities were $5,722,000 per year and consisted of such items as building depreciation, building maintenance, and building utilities. The cardiology fool and the maternity floor each occupy 18,900 square feet. Hepworth determined that lodging costs would be assigned to each unit based on square feet To compute a daily rate that reflected the difference in demands, patients were placed in three categories according to illness severity, and the following annual data were collected: Activity Cost of Activity Activity Driver Quantity Lodging $662,100 Patient days 22,070 Monitoring 2,016,300 Monitoring hours used 30,550 Feeding 419,330 Patient days 22,070 Nursing care 4,985,200 Nursing hours 226,600 Total 8,082,930 The demands associated with patient severity are also provided: Severity Patient Days Monitoring Hours Nursing Hours High 7.730 15,340 137,800 Medium 10,450 12,370 72,400 LOW 3,890 2,840 16,400

Answer 1

Part A

Daily rate using this unit-based approach of cost assignment = total overhead cost / number of patient days = 8082930/22070 = $366.24 per day

Part B

Rate 1	$49 per day
Rate 2	$66 per device used
Rate 3	$22 per nursing hour

Rate 1	Lodging & feeding rate	(662100+419330)/22070	$49 per day
Rate 2	Monitoring	(2016300/30550)	$66 per monitoring hour
Rate 3	Nursing card	(4985200/226600)	$22 per nursing hour

Part C

High severity	$572.16
Medium severity	$279.55
Low severity	$189.94

High severity
Lodging & feeding rate (49*7730)	378770
Monitoring (66*15340)	1012440
Nursing card (22*137800)	3031600
Total cost	4422810
Patient days	7730
Cost per patient day	$572.16

Medium severity
Lodging & feeding rate (49*10450)	512050
Monitoring (66*12370)	816420
Nursing card (22*72400)	1592800
Total cost	2921270
Patient days	10450
Cost per patient day	$279.55

Low severity
Lodging & feeding rate (49*3890)	190610
Monitoring (66*2840)	187440
Nursing card (22*16400)	360800
Total cost	738850
Patient days	3890
Cost per patient day	$189.94