ABC, Resource Drivers, Service Industry
Glencoe Medical Clinic operates a cardiology care unit and amaternity care unit. Colby Hepworth, the clinic’s administrator, isinvestigating the charges assigned to cardiology patients.Currently, all cardiology patients are charged the same rate perpatient day for daily care services. Daily care services arebroadly defined as occupancy, feeding, and nursing care. A recentstudy, however, revealed several interesting outcomes. First, thedemands patients place on daily care services vary with theseverity of the case being treated. Second, the occupancy activityis a combination of two activities: lodging and use of monitoringequipment. Since some patients require more monitoring than others,these activities should be separated. Third, the daily rate shouldreflect the difference in demands resulting from differences inpatient type. Separating the occupancy activity into two separateactivities also required the determination of the cost of eachactivity. Determining the costs of the monitoring activity wasfairly easy because its costs were directly traceable. Lodgingcosts, however, are shared by two activities: lodging cardiologypatients and lodging maternity care patients. The total lodgingcosts for the two activities were $5,755,000 per year and consistedof such items as building depreciation, building maintenance, andbuilding utilities. The cardiology floor and the maternity flooreach occupy 21,100 square feet. Hepworth determined that lodgingcosts would be assigned to each unit based on square feet.
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 | $ 573,750 | Patient days | 21,250 |
| Monitoring | 2,259,350 | Monitoring hours used | 30,950 |
| Feeding | 403,750 | Patient days | 21,250 |
| Nursing care | 4,267,400 | Nursing hours | 224,600 |
| Total | 7,504,250 | | |
The demands associated with patient severity are alsoprovided:
| Severity | Patient Days | Monitoring Hours | Nursing Hours |
| High | 7,420 | 15,130 | 133,100 |
| Medium | 10,720 | 12,360 | 74,200 |
| Low | 3,110 | 3,460 | 17,300 |
Required:
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. If required, round youranswer to the nearest cent.
$ 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 |
