A healthcare company specialises in hip, knee and shoulder replacement operations, known as surgical procedures. As well
Question:
A healthcare company specialises in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.
Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations.Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations.All other staff are paid annual salaries.
The company’s existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company’s accountant has initiated a project to implement an activity-based costing (ABC) system.
The project team has collected the following data on each of the procedures.
The project team has obtained the following information about the support activities.
Required:
(a) Calculate the profit per procedure for each of the three procedures, using the current basis for charging the costs of support activities to procedures.
(b) Calculate the profit per procedure for each of the three procedures using activity-based costing.
(c) Discuss the ways in which the information obtained by the project team may be of benefit to the management of the company.
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