70.2K

Verified Solution

Link Copied!

Radiology Center of Gwinnett: Traditional vs ABC Costing Methods

The Radiology Center of Gwinnett (RCG) performs radiographic, ultrasound, CT, and MRI imaging services. RCG has developed a reputation as a top Radiology Center in the region because of its commitment to a continuous improvement review process.

RCG currently uses a single, facility-wide indirect cost allocation rate based on technician labor hours. The VP of Finance believes that RCG can make process improvements if it uses more disaggregated cost information. She says, we have state of the art medical imaging technology. Cant we have state of the art cost accounting too?

The table below summarizes the relevant budgeted information from the 2^nd Quarter, 2020.

Radiology Center of Gwinnett Budgeted information for the 2nd Quarter 2020
	Radiographic	Ultrasound	CT	MRI	Total
Standard billing rate per procedure	$250	$250	$525	$650
Quarterly direct cost budget:
Consumable materials	22,080	16,500	24,000	31,250	93,830
Technician labor	$61,440	$105,600	$96,000	$105,000	$368,040
Quarterly indirect cost budget:
Depreciation & Maintenance					984,060
Administration					95,610
Facility Sterilization					196,180
Utilities					134,350
Total indirect cost budget					$1,410,200
Quarterly operational data:
Minutes for procedures	19,200	22,000	45,000	87,500	173,700
Technician labor hours (TLH)	2,048	2,458	3,200	3,000	10,706
Post-procedure minutes	19,200	66,000	60,000	112,500	257,700
Number of procedures	3,840	4,400	3,000	2,500	13,740

The proposed activity-based cost (ABC) assignment bases for indirect costs are:

• Depreciation and Maintenance minutes for procedures
• Administration TLH
• Facility Sterilization post-procedure minutes
• Utilities number of procedures

Required: (be sure to document all your work)

1. Determine the gross profit per radiographic, ultrasound, CT scan, and MRI procedure based on the facility-wide indirect allocation rate that RCG is currently using.
2. Determine the gross profit per radiographic, ultrasound, CT scan, and MRI procedure assuming RCG uses activity-based cost rates as proposed by the VP of Finance.
3. Briefly discuss the results

Answer & Explanation Solved by verified expert

See Answer