Question

Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay 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 follow:

1	Activity	Budgeted Activity Cost	Activity Base
2	Scheduling and admitting	$432,000.00	Number of patients
3	Housekeeping	4,212,000.00	Number of patient days
4	Nursing	5,376,000.00	Weighted care unit
5	Total costs	$10,020,000.00

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 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 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, Pleasant Stay collected patient information for three selected procedures, as follows:

	Activity-Base Usage
Procedure A
Number of patients	280
Average length of stay	× 6 days
Patient days	1,680
Weighted care units	19,200
Procedure B
Number of patients	650
Average length of stay	× 5 days
Patient days	3,250
Weighted care units	6,000
Procedure C
Number of patients	1,200
Average length of stay	× 4 days
Patient days	4,800
Weighted care units	24,000

Private insurance reimburses the hospital for these activities at a fixed daily rate of $406 per patient day for all three procedures.

	Required:
1.	Determine the activity rates. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.
2.	Determine the activity cost for each procedure. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.
3.	Determine the excess or deficiency of reimbursements to activity cost. Enter a deficiency with a minus sign. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.
4.	Interpret your results.

Answer 1

ANSWER

1. Calculation of the Activity rate:

1	Activity	Budgeted Activity Cost	Activity Base	No. of activity	Activity rate
2	Scheduling and admitting	$432,000.00	Number of patients	6000	72	Per patients
3	Housekeeping	4,212,000.00	Number of patient days	27000	156	Per patients day
4	Nursing	5,376,000.00	Weighted care unit	192000	28	Per Weighted care units
5	Total costs	$10,020,000.00

2. Calculation of the activity cost for each procedure.

1	Activity	Budgeted Activity Cost	Activity Base	No. of activity	Activity rate		Procedure A	Procedure B	Procedure C
2	Scheduling and admitting	$432,000.00	Number of patients	6000	72	Per patients	20160	46800	86400
3	Housekeeping	4,212,000.00	Number of patient days	27000	156	Per patients day	262080	507000	748800
4	Nursing	5,376,000.00	Weighted care unit	192000	28	Per Weighted care units	537600	168000	672000
5	Total costs	$10,020,000.00					819840	721800	1507200

	Particulars	Activity cost
1	Procedure A	819840
2	Procedure B	721800
3	Procedure C	1507200

3 Calculation of the excess or deficiency of reimbursements to activity cost.

	Particulars	Activity cost	Revenue	Excess or (Deficiency)
1	Procedure A	819840	682080	-137760
2	Procedure B	721800	1319500	597700
3	Procedure C	1507200	1948800	441600

Answer:4

	Particulars	Weighted care units per patients days
1	Procedure A	11.43
2	Procedure B	1.846
3	Procedure C	5

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