Lancaster County Hospital uses activity-based costing to determine the cost of serving patients. The hospital identified common treatments and developed the activity-based cost per patient by treatment. The activities and activity rates for a patient receiving coronary bypass surgery are as follows:
Activity Activity Rate
Admission.........................$ 150 per admission
Operating room........................$3,000 per hour
Nursing......................$ 50 per nursing care unit
Discharge...........................$ 100 per discharge
Nursing care units are measures of time and effort to perform nursing duties, such as providing IV care, checking vital signs, and administering drugs. It is determined that there are an average of 10 nursing care units per patient-day in the hospital for a coronary bypass. The average bypass patient is in the hospital for 6 days. The bypass procedure requires an average of 3 hours of operating room time.
A. Determine the activity cost per patient for the coronary bypass treatment.
B. Assume the hospital was able to make improvements such that the average length of stay in the hospital for the bypass was reduced from 6 days to 5 days. Further assume that additional improvements in medical technology reduced the operating room time for a bypass to 2½ hours. Determine the activity cost per patient for the coronary bypass treatment under these revised conditions. What is the cost improvement?