Activity-based costing in a health care organization In computing the cost of patient stays, Riverside General Hospital assesses physician costs and medication costs directly to each patient. Riverside has examined its support costs for patient stays, resulting in identification of 18 account names, related account expenses, and cost drivers for support costs for the fiscal year 1999:

REQUIRED

(a) Ana Navarro, Riverside's controller, has suggested using a simpler classifica¬ tion scheme that groups the 18 activities or accounts into unit (patient day)- related, batch (patient)-related, and facility-sustaining activity cost pools.
Which of the 18 activities should be included in each of these three cost pools?

(b) Ana believes that 45,606 patient days should be used as the cost driver ac¬ tivity level for the unit-related activity cost pool, and 8,367 patients should be used for the batch-related activity cost pool. Using this cost system, what reimbursement from the insurance company is required to cover at least the unit-related and batch-related costs for a patient who stays in the hospital for 14 days?

(c) What advice would you give Riverside regarding choosing between a cost system with the 18 drivers initially identified and the cost system described in part (b)?

Transcribed Image Text:

RIVERSIDE GENERAL HOSPITAL OPERATING COSTS AND ACTIVITY COST DRIVERS FOR FISCAL YEAR 1990 ACCOUNT NUMBER ACCOUNT NAME COST ACTIVITY COST DRIVER 101 Nursing services $ 2,973,154 Nursing hours 102 Nursing administration 1,269,762 Nursing hours 103 Pharmacy 496,629 Number of patient days 104 Laboratory 312,347 Number of tests 105 Medical supplies 482,165 Number of patient days 106 Linen and laundry 358,736 Pounds of laundry 107 Dietary 813,148 Number of meals 108 Employee cafeteria 167,239 Number of nurse days 109 Housekeeping 706,308 Square feet of space