Activity Driver Patient days Hours of nursing care Number of nurses Annual Cost Annual Quantity Activity Occupancy and feeding Nursing care (maternity) Nursing supervision $1,500,000 10,000 1,200,000 50,000 150 The pilot study also revealed the following information concerning the three types of pa- tients and their annual demands: Patient Type Patient Days Demanded Nursing Hours Demanded Normal 7,000 17,500 Cesarean 2,000 12,500 Complications Total 1,000 20,000 10,000 50,000
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Activity Costing, Assigning Resource Costs, Primary and
Secondary Activities
Elmo Clinic has identified three activities for daily maternity care: occupancy and feeding,
nursing, and nursing supervision. The nursing supervisor oversees 150 nurses, 25 of whom
are maternity nurses (the other nurses are located in other care areas such as the emergency
room and intensive care). The nursing supervisor has three assistants, a secretary, several
offices, computers, phones, and furniture. The three assistants spend 75% of their time
on the supervising activity and 25% of their time as surgical nurses. They each receive a
salary of $60,000. The nursing supervisor has a salary of $80,000. She spends 100% of her
time supervising. The secretary receives a salary of $35,000 per year. Other costs directly
traceable to the supervisory activity (depreciation, utilities, phone, etc.) average $170,000
per year.
Daily care output is measured as “patient days.” The clinic has traditionally assigned the cost
of daily care by using a daily rate (a rate per patient day). Daily rates can differ between units,
but within units the daily rates are the same for all patients. Under the traditional approach,
the daily rate is computed by dividing the annual costs of occupancy and feeding, nursing, and
a share of supervision by the unit’s capacity expressed in patient days. The cost of supervision is
assigned to each care area based on the number of nurses. A single driver (patient days) is used
to assign the costs of daily care to each patient.
A pilot study has revealed that the demands for nursing care vary within the maternity unit,
depending on the severity of a patient’s case. Assume that the maternity unit has three levels
of increasing severity: normal patients, cesarean patients, and patients with complications. The
pilot study provided the following activity and cost information:
Required:
1. Calculate the cost per patient day by using a functional-based approach.
2. Calculate the cost per patient day by using an activity-based approach. (Round rates and
unit cost to two decimal places.)
3. CONCEPTUAL CONNECTION The hospital processes 1,250,000 pounds of laundry
per year. The cost for the laundering activity is $600,000 per year. In a functional-based
cost system, the cost of the laundry department is assigned to each user department in
proportion to the pounds of laundry produced. Typically, maternity produces 240,000
pounds per year. How much would this change the cost per patient day calculated
in Requirement 1? Now, describe what information you would need to modify the
calculation made in Requirement 2. Under what conditions would this activity
calculation provide a more accurate cost assignment?
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