=+6-49 KKK Activity-based costing, health care OBJECTIVES 7, 8 Haven Health Centre runs two programs: drug addict rehabilitation and aftercare (counselling and support of patients after release from a mental hospital). The centre’s budget for 2015 follows:

$ $

Professional salaries:

4 doctors × $150 000 $600 000 12 psychologists × $75 000 900 000 16 nurses × $30 000 480 000 $1 980 000 Medical supplies 220 000 Rent and clinic maintenance 126 000 Administrative costs to manage patient charts, food, laundry 440 000 Laboratory services 84 000 Total $2 850 000 Jess Parker, the director of the centre, is keen on determining the cost of each program. Jess compiled the following data describing employee allocations to individual programs:

Drug Aftercare Total employees Doctors 4 4 Psychologists 4 8 12 Nurses 6 10 16 Jess has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, Ian Curry, how she should apply this technique. Curry obtains the following budgeted information for 2015:

Drug Aftercare Total Square metres of space occupied by each program 900 1200 2100 Patient-years of service 50 60 110 Number of laboratory tests 1400 700 2100 Required 1 a Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the indirect cost rates for: medical supplies; rent and clinic maintenance; administrative costs for patient charts, food and laundry; and laboratory services.