ABC profit analysis

3) ABC profitability analysis A healthcare company specializes in hip. knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedLres 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 tee charged to patients for any follow up consultations. All other staff are paid annual salaries. The company's existing costing system uses a siege 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 scum-based mfg (ABC) system. The project team has collected the following data on each of the procedures. Procedure information Hip Knee Shoulder Fee charged to patients per procedure $8000 $9000 36000 Number of procedures per annum 500 1000 500 Average time per procedure 2.0 hours 1.0 hours 2.0 hours Number of procedures per theatre session 1 2 2 Ira-patient days per procedure 3 2 l Surgeon's fee per procedure $1250 $1100 $1500 % of procedures with complications 6% 4% 5% Surgeon's fee per follow up consultation $400 $300 5400 Cost of medical supplies per procedure $500 3300 S400 The project team has obtained the following information about the support activities. Activity Cost driver Overheads Theatre preparation for each session Number of theatre preparations 800 000 Operating theatre usage Procedure time 1 200 000 Nursing and ancillary services In-patient days 6 000 000 Administration Sales revenue 1 200 000 Other overheads Number of procedures 1 000 000 Required: (:3) Calculate the profit per procedure for each of the three procedures, using the current basis for charging the costs 01' support activities to procedures (single overhead rate). (1 Op)