5-43 ABC, health care. Max Health Center runs three programs: (1) alcoholic rehabilitation, (2) drug addict...

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5-43 ABC, health care. Max Health Center runs three programs: (1) alcoholic rehabilitation, (2) drug addict rehabilitation, and (3) after care (counseling and support of patients after release from a mental hospital). The center's budget for current year follows: Professional salaries 4 physicians? 6,00,000 18 psychologists ? 3,00,000 BED COSTING AND ACTIVITY BASED MANAGEME 24,00,000 20 nurses? 1,20,000 54,00,000 Medical supplies 24,00,000 1,02,00,000 General overhead (administrative salaries, rent, utilities, etc.) 6,00.000 17.60.000 1,25,60,000 Amitabh, the director of the Center, is keen on determining the cost of each program. Amitabh compiled the following data describing employee allocations to individual programs: Physicians Psychologists Nurses Alcohol Drug 4 6 4 4 6 Aftercare 8 10 Total Employees 4 18 20 Eighty patients are in residence in the alcohol program, each staying about six months. Thus, the clinic provides 40 patient-years of service in the alcohol program. Similarly, 100 patients are involved in the drug program for about six months each. Thus, the clinic provides 50 patient-years of service in the drug program. Amitabh has recently become aware of activity-based costing as a method to refine costing systems. He asks his accountant, Suresh, how he should apply this new technique. Suresh obtains the following information: 1. Consumption of medical supplies depends on the number of patient-years. 2. General overhead costs consist of Rent and clinic maintenance Administrative costs to manage patient charts, food, laundry Laboratory services Total 3. Other information about individual departments: 3,60,000 12,00,000 2,00,000 17,60,000 Total 3. Other information about individual departments: Total Square feet of space occupied by each program Patient-years of service Alcohol Drug Aftercare 9,000 9,000 12,000 Employees 30,000 150 Number of laboratory tests 40 50 60 400 1,400 70 2,500 1. a. Select cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the indirect-cost rates for medical supplies, rent, and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services. b. Using an activity-based costing approach to cost analysis, calculate the cost of each program and the cost per patient-year of the alcohol and drug programs. c. What benefits can Max Health Center obtain by implementing the ABC system? 2. What factors, other than cost, do you think Max Health Center should consider in allocating resources to its programs? PCL buys coffee 5-43 ABC, health care. Max Health Center runs three programs: (1) alcoholic rehabilitation, (2) drug addict rehabilitation, and (3) after care (counseling and support of patients after release from a mental hospital). The center's budget for current year follows: Professional salaries 4 physicians? 6,00,000 18 psychologists ? 3,00,000 BED COSTING AND ACTIVITY BASED MANAGEME 24,00,000 20 nurses? 1,20,000 54,00,000 Medical supplies 24,00,000 1,02,00,000 General overhead (administrative salaries, rent, utilities, etc.) 6,00.000 17.60.000 1,25,60,000 Amitabh, the director of the Center, is keen on determining the cost of each program. Amitabh compiled the following data describing employee allocations to individual programs: Physicians Psychologists Nurses Alcohol Drug 4 6 4 4 6 Aftercare 8 10 Total Employees 4 18 20 Eighty patients are in residence in the alcohol program, each staying about six months. Thus, the clinic provides 40 patient-years of service in the alcohol program. Similarly, 100 patients are involved in the drug program for about six months each. Thus, the clinic provides 50 patient-years of service in the drug program. Amitabh has recently become aware of activity-based costing as a method to refine costing systems. He asks his accountant, Suresh, how he should apply this new technique. Suresh obtains the following information: 1. Consumption of medical supplies depends on the number of patient-years. 2. General overhead costs consist of Rent and clinic maintenance Administrative costs to manage patient charts, food, laundry Laboratory services Total 3. Other information about individual departments: 3,60,000 12,00,000 2,00,000 17,60,000 Total 3. Other information about individual departments: Total Square feet of space occupied by each program Patient-years of service Alcohol Drug Aftercare 9,000 9,000 12,000 Employees 30,000 150 Number of laboratory tests 40 50 60 400 1,400 70 2,500 1. a. Select cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the indirect-cost rates for medical supplies, rent, and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services. b. Using an activity-based costing approach to cost analysis, calculate the cost of each program and the cost per patient-year of the alcohol and drug programs. c. What benefits can Max Health Center obtain by implementing the ABC system? 2. What factors, other than cost, do you think Max Health Center should consider in allocating resources to its programs? PCL buys coffee