Happy Surgery’s management wants you to compute the total cost and unit cost for 2 of the firm’s 25 different products, eye surgery and hip replacement, for the month of March. The activity levels for the month of March follow. (Note: March is not necessarily a typical month.)

et WZ Use medical supplies Use surgical nursing staff Eye Surgery 50 surgeries 80 hours of surgery Hip Replacement 20 surgeries 50 hours of surgery 1.3. Clean operating room and set up for surgeries 1.4. Provide recovery room-care 50 surgeries 20 surgeries 100 hours of patient 80 hours of patient time in time in the recovery room the recovery room 2.1. Maintain information for each type 1 type of surgery 1 type of surgery of surgery performed 2.2 Provide special equipment for eye surgery 2.3 Provide replacement parts for hip NA and knee surgeries 1 type of eye surgery NA 20 parts (1 per surgery)

3.1 Conduct presurgery visit with patient 80 visits 40 visits 3.2 Make postsurgery calls 120 calls 60 calls 3.3 Conduct postsurgery visits with patients 50 visits 25 visits 4.1 Provide supervision See cost of activities See cost of activities 1.2, 1.2, 1.3, and 1.4. 1.3, and 1.4.

4.2 Use operating rooms 80 hours 50 hours 4.3 Use recovery rooms 100 hours 80 hours Required

a. Compute the cost-driver rate for each cost-driver base.

b. Using ABC, compute the cost of each product, eye surgery and hip surgery, given the activity level for the month of March. Compute both the total cost and unit cost for each product for the month of March.

c. Assume that the company’s traditional costing system had assigned product-level, customer-level, and facility-level costs to surgeries amounting to $815 per surgery. Using this traditional costing approach, compute the cost of eye surgery and hip surgery given the activity level for the month of March. Be sure to add unit-level costs to the $815 per surgery. Compute both the total cost and unit cost for each product for the month of March.

d. Comparing the ABC and traditional costing systems, do the unit costs of the two products differ significantly? If so, what causes the differences