Reference no: EM132690716
Problem - Product costing and decision analysis for a hospital
Healthmark Medical Inc. wishes to determine its product costs. Healthmark offers a variety of medical procedures (operations) that are considered its "products." The overhead has been separated into three major activities. The annual estimated activity costs and activity bases are provided below.
|
Activity
|
Budgeted Activity Cost
|
Activity Base
|
|
Scheduling and admitting
|
$ 300,000
|
Number of patients
|
|
Housekeeping
|
2,925,000
|
Number of patient days
|
|
Nursing
|
3,840,000
|
Weighted care unit
|
|
Total costs
|
$7,065,000
|
|
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 160,000 weighted care units estimated for the year. In addition, Healthmark estimated 5,000 patients and 22,500 patient days for the year. (The average patient is expected to have a a little more than a four-day stay in the hospital.)
During a portion of the year, Healthmark collected patient information for three selected procedures, as shown below.
|
|
Activity-Base Usage
|
|
Procedure A
|
|
Number of patients
|
230
|
|
Average length of stay
|
x 5 days
|
|
Patient days
|
1,150
|
|
Weighted care units
|
16,000
|
|
Procedure B
|
|
Number of patients
|
540
|
|
Average length of stay
|
x 4 days
|
|
Patient days
|
2,160
|
|
Weighted care units
|
5,000
|
|
Procedure C
|
|
Number of patients
|
1000
|
|
Average length of stay
|
x 3 days
|
|
Patient days
|
3,000
|
|
Weighted care units
|
20,000
|
Private insurance reimburses the hospital for these activities at a fixed daily rate of $400 per patient day for all three procedures.
Instructions -
1. Determine the activity rates.
2. Determine the activity cost for each procedure.
3. Determine the excess or deficiency of reimbursements to activity cost.
4. Interpret your results.