Midtown Hospital administrators know that the seriousness of patients’ illnesses determines the skill and amount of nursing services the hospital requires. For example, their study of activities reveal that patients in Cardiac Care need eight times as much nursing care as new mothers in Maternity. Traditionally, the hospital has allocated its total nursing costs on the number of patient beds occupied. Some of the administrators do not believe ABC is warranted because so many of their costs, such as occupancy and dietary, are the same for all patients.

Other administrators disagree and provide you with the following information relating to acuteness or seriousness levels of the Maternity patients. Total monthly nursing services costs—

$450,000; 1,000 total days occupied by all departments monthly. For simplicity, only two departments are detailed out; data for the other departments are totaled. Assume the average acuteness level is 4 for these other departments.

Required:
Compare the hospital’s current approach with an ABC approach using activity drivers of costs per day for each acuteness level. Discuss which approach more accurately reflects the actual service received.

Transcribed Image Text:

Cardiac Care Department Maternity Department Other departments Monthly Patient Beds Occupied Acuteness Level 100 days 300 days 600 days 8 1 4