=+6-45 KKK Department and activity cost rates, service sector OBJECTIVES 5, 7, 10 Clear Radiology Centre (CRC) performs X-rays, ultrasounds, CT scans and MRIs. CRC has developed a reputation as a top radiology centre in the state. CRC has achieved this status because it constantly re-examines its processes and procedures. CRC has been using a single, organisation-wide overhead allocation rate. The vice-president of the Finance Department believes that CRC can make better process improvements if it uses more disaggregated cost information. She says: ‘We have state-of-the-art medical imaging technology.

Can’t we have state-of-the-art accounting technology?’

Clear Radiology Centre Budgeted information for the year ended 2013 X-rays Ultrasound CT scans MRI Total Technician labour $122 880 $211 200 $192 000 $210 000 $736 080 Depreciation 64 480 536 000 878 000 1 795 000 3 273 480 Materials 44 160 33 000 48 000 62 500 187 660 Total $231 520 $780 200 $1 118 000 $2 067 500 $4 197 220 Administration 41 220 Maintenance 494 640 Sanitation 392 360 Utilities 268 700

$5 394 140 Number of procedures 3 840 4 400 3 000 2 500 Minutes to clean after each procedure 5 5 15 35 Minutes for each procedure 5 15 20 45 CRC operates at capacity. The proposed cost-allocation bases for overhead are as follows:

Administration Number of procedures Maintenance (including parts) Capital cost of the equipment (use depreciation)

Sanitation Total cleaning minutes Utilities Total procedure minutes Required 1 Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans and MRIs using direct technician labour costs as the cost-allocation basis.

Chapter 6: Activity-based costing and activity-based management 255 M06_HORN3377_02_LT_C06.indd 255 2/09/13 3:26 PM