MA11 Problem: Activity Based Costing – Uppervale Health Centre

MA11 Problem: Activity Based Costing – Uppervale Health Centre

Uppervale Health Centre runs four programs: (1) alcoholic rehabilitation, (2) drug-addictrehabilitation, (3) children’s services, and (4) after-care (counseling and support of patients after release from a mental hospital).The Centre’s budget for 2005 follows:Professional salaries:6 physicians x $100,000 $600,00019 psychologists x $50,000 950,00023 nurses x $25,000 575,000 $2,125,000Medical supplies 300,000General overhead (administrative salaries, rent, utilities, etc.) 1,275,000$3,700,000 The staff completed surveys indicating the time devoted to each of the four programs. Employeeallocations to individual programs are:Alcohol Drug Children After-care Total EmployeesPhysicians -- 2 4 -- 6Psychologists 6 4 -- 9 19 Nurses 4 6 4 9 23Eighty (80) patients are in residence in the alcohol program, each staying about a half-year.Thus, the clinic provided 40 patient-years of service in the alcohol program. Similarly, 100 patients were involved in the drug program for about a half-year each. Thus, the clinic provided50 patient-years of service in the drug program. The clinic provided 50 and 60 patient-years of service to Children’s Services and After-care respectively.Other information gathered by the Centre:1. Administrative costs and consumption of medical supplies depend on the number of patientsin each department and the length of their stays (that is, patient-years).2. Rent and Clinic Maintenance depends on the square metres of space occupied by each program.3. Laboratory service costs are driven by the number of laboratory tests performed.4. General overhead costs consist of:Rent and clinic maintenance $ 200,000Administrative costs to manage patient charts, food, laundry 800,000Laboratory services 275,0001,275,000



CMA Ontario

P-25 3. Other information about individual departments:Alcohol Drug Children After-care TotalSquare metres of spaceoccupied by each program9,0009,00010,00012,000 40,000 Number of patients 80100100120 400 Number of laboratory tests 4001,4003,000700 5,500 REQUIRED1a. Calculate the indirect-cost rates for medical supplies, rent and clinic maintenance,administrative cost rate for patient charts, food, and laundry, and laboratory services using anactivity-based costing approach. b. What are the total costs of each program and the cost per patient-year using an activity-basedcosting approach?

. Other information about individual departments:Alcohol Drug Children After-care TotalSquare metres of spaceoccupied by each program9,0009,00010,00012,000 40,000 Number of patients 80100100120 400 Number of laboratory tests 4001,4003,000700 5,500 REQUIRED1a. Calculate the indirect-cost rates for medical supplies, rent and clinic maintenance,administrative cost rate for patient charts, food, and laundry, and laboratory services using anactivity-based costing approach. b. What are the total costs of each program and the cost per patient-year using an activity-basedcosting approach?