Activity-Based Costing for a Service Company

Crosswinds Hospital plans to use activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs:

Activity Activity Rate

Room and meals$234per day

Radiology$330per image

Pharmacy$49per physician order

Chemistry lab$109per test

Operating room$860per operating room hour

The activity usage information associated with the two patients is as follows:

Abel PutinCheryl Umit

Number of days4days11days

Number of images4images8images

Number of physician orders4orders6orders

Number of tests3tests6tests

Number of operating room hours1.5hours5.5hours

a. Determine the activity cost associated with each patient.

Abel Putin$

Cheryl Umit$

b. Why is the total activity cost different for the two patients?

apparently had a different condition that required more extensive treatment. Thus, the activity cost to is more than the activity cost of the other patient.