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Activity-Based Costing for a Service Company Crosswinds Hospital plans to use activity-based costing to assign hospital...

Activity-Based Costing for a Service Company

Crosswinds Hospital plans to use activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs:

Activity Activity Rate

Room and meals$234per day

Radiology$330per image

Pharmacy$49per physician order

Chemistry lab$109per test

Operating room$860per operating room hour

The activity usage information associated with the two patients is as follows:

Abel PutinCheryl Umit

Number of days4days11days

Number of images4images8images

Number of physician orders4orders6orders

Number of tests3tests6tests

Number of operating room hours1.5hours5.5hours

a. Determine the activity cost associated with each patient.

Abel Putin$

Cheryl Umit$

b. Why is the total activity cost different for the two patients?

  apparently had a different condition that required more extensive treatment. Thus, the activity cost to   is more than the activity cost of the other patient.

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Answer #1

Activity cost of Abel Putin

Rooms and meals = 234*4 =936

Radiology = 330*4 = 1,320

Pharmacy = 49*4 =196

Chemistry = 109*3 =327

Operating room = 860*1.5 = 1,290

Total = $4,069

Activity cost of Cheryl Umit

Rooms and meals = 234*11 =2,574

Radiology = 330*8 = 2,640

Pharmacy = 49*6 =294

Chemistry = 109*6 =654

Operating room = 860*5.5 = 4,730

Total = $10,892.

B)

The total activity cost of both the patient is different as the cost is allocated on the basis of usage of the overhead by different patient which is been alloted with the help of different cost drivers. This method of allocation of cost is called as Activity Based Costing method. Also Cheryl Umit had an expensive treatment as the cost is higher.

So the activity cost of Cheryl Umit is higher than the Abel Putin.

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