ABC, Resource Drivers, Service Industry Glencoe Medical Clinicoperates a cardiology care unit and a maternity care unit. ColbyHepworth, the clinic’s administrator, is investigating the chargesassigned to cardiology patients. Currently, all cardiology patientsare charged the same rate per patient day for daily care services.Daily care services are broadly defined as occupancy, feeding, andnursing care. A recent study, however, revealed several interestingoutcomes. First, the demands patients place on daily care servicesvary with the severity of the case being treated. Second, theoccupancy activity is a combination of two activities: lodging anduse of monitoring equipment. Since some patients require moremonitoring than others, these activities should be separated.Third, the daily rate should reflect the difference in demandsresulting from differences in patient type. Separating theoccupancy activity into two separate activities also required thedetermination of the cost of each activity. Determining the costsof the monitoring activity was fairly easy because its costs weredirectly traceable. Lodging costs, however, are shared by twoactivities: lodging cardiology patients and lodging maternity carepatients. The total lodging costs for the two activities were$5,700,000 per year and consisted of such items as buildingdepreciation, building maintenance, and building utilities. Thecardiology floor and the maternity floor each occupy 20,000 squarefeet. Hepworth determined that lodging costs would be assigned toeach unit based on square feet. To compute a daily rate thatreflected the difference in demands, patients were placed in threecategories according to illness severity, and the following annualdata were collected:
To compute a daily rate that reflected the difference indemands, patients were placed in three categories according toillness severity, and the following annual data were collected:
| Activity | Cost of Activity | Activity Driver | Quantity |
| Lodging | $ 2,850,000 | Patient days | 22,500 |
| Monitoring | 2,100,000 | Monitoring hours used | 30,000 |
| Feeding | 450,000 | Patient days | 22,500 |
| Nursing care | 4,500,000 | Nursing hours | 225,000 |
| Total | $ 9,900,000 | | |
The demands associated with patient severity are alsoprovided:
| Severity | Patient Days | Monitoring Hours | Nursing Hours |
| High | 7,500 | 15,000 | 135,000 |
| Medium | 11,250 | 12,000 | 75,000 |
| Low | 3,750 | 3,000 | 15,000 |
1. Suppose that the costs of daily care areassigned using only patient days as the activity driver (which isalso the measure of output). Compute the daily rate using thisunit-based approach of cost assignment.
$ per day
2. Compute activity rates using the givenactivity drivers (combine activities with the same driver). Ifrequired, round your answers to the nearest cent.
| Rate 1 | $ per patient day |
| Rate 2 | $ per monitoring hour |
| Rate 3 | $ per hour of nursing care |
3. Compute the charge per patient day for eachpatient type using the activity rates from Requirement 2 and thedemands on each activity. Round your interim calculations and finalanswers to the nearest cent.
| High severity | $ per patient day |
| Medium severity | $ per patient day |
| Low severity | $ per patient day |
