(Activity-based costing and pricing) Orlando Community Hospital has been under increasing pressure to be accountable for the charges it assesses its patients. Its current pricing system is ad hoc, based on pricing norms for the geographical area, and it explicitly considers direct costs only for surgery, medication, and other treatments. Orlando’s controller has suggested that the hospital improve its pricing policies by seeking a tighter relationship be¬ tween 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.

a. Determine the allocation rates for each activity center cost pool.

b. Allocate the activity center costs to the three services provided by the hospital.

c. What bases might be used as cost drivers to allocate the service center costs among the patients served by the hospital? Defend your selections.

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Activity Center Amount Activity Driver Quantity Professional salaries $1,800,000 Professional hours 30,000 hours Building costs 900,000 Risk management 640,000 Square feet used Patients served 15,000 sq. ft. 1,000 patients The hospital provides service in three broad categories. The services follow with their volume measures for the activity centers. Service Professional Hours Surgery 6,000 Housing patients 20,000 Outpatient care 4,000 Square Feet Number of Patients 1,200 400 12,000 1,000 1,800 600