Shirtz Community Hospital has been under increasing pressure to be accountable for its patient charges. The hospital€™s current pricing system is ad hoc, based on pricing norms for the geographical area; only direct costs for surgery, medication, and other treatments are explicitly considered. The hospital€™s controller has suggested that the hospital improve pricing policies by seeking a tighter relationship between costs and pricing. This approach would make prices for services less arbitrary. As a first step, the controller has determined that most costs can be assigned to one of three cost pools. The three cost pools follow along with the estimated amounts and activity drivers.

The hospital provides service in three broad categories. The services follow with their volume measures for the activity centers.

a. What bases might be used as cost drivers to allocate the service center costs among the patients served by the hospital? Defend your selections.
b. The hospital currently charges an €œadd-on€ rate calculated using professional hours to patients€™ direct charges. What rate is Shirtz Community Hospital charging per hour? (Round to the nearest dollar.)
c. Determine the allocation rates for each activity center cost pool.
d. Allocate the activity center costs to the three services provided by the hospital.
e. Shirtz Community Hospital has decided to estimate costs by activity center using professional hours. What is the cost per professional hour of each activity center? What would cause the cost per hour difference for the three services? (Round to the nearestdollar.)

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Activity Center Professional salaries 13,125,000 Professional hours 75,000 hours Building costs Risk management Amount Activity Driver Quantity 618700 Square feet used 56,250sq. ft. 850,000 Patients served 2,500 patients Service Surgery Housing patients Outpatient care Professional Hours Square FeetNumber of Patients 3,750 70,000 1,250 12,500 27,500 16,250 500 ,250 750