Calculation of ABC product cost and discussion as to whether ABC should be implemented Beckley Hill (BH) is a private hospital carrying out two types of procedures on patients. Each type of procedure incurs the following direct costs:

BH currently calculates the overhead cost per procedure by taking the total overhead cost and simply dividing it by the number of procedures, then rounding the cost to the nearest twp decimal places. Using this method, the total cost is $2475.85 for Procedure A and $4735.85 for Procedure B.

Recently, another local hospital has implemented activity-based costing (ABC).
This has led the finance director at BH to consider whether this alternative costing technique would bring any benefits to BH. He has obtained an analysis of BH’s total overheads for the last year and some additional data, all of which is shown below:

Required:

(a) Calculate the full cost per procedure using activity-based costing.
(6 marks)

(b) Making reference to your findings in part (a), advise the finance director as to whether activity-based costing should be implemented at BH.
(4 marks)
ACCA F2 Management Accounting

Transcribed Image Text:

Procedure Surgical time and materials Anaesthesia time and materials A B ($) ($) 1200 2640 800 1620