Activity-Based Costing Practice Problem XYZ Home Health Care Corporation wants to develop a product cost for the following home visits using labor expense and supply expense to assign direct costs and visit minutes as a cost driver to assign indirect costs. Projected total costs for the home health care corporation are $6 million ($5 million direct and $1 million indirect). Assign costs to each visit using the following information:

Activity-Based Costing Practice Problem Solution

Step 1: Calculate the direct RVU and the indirect RVU for each visit, a two-part process. Step 1, Part 1: Divide total sample direct cost (labor expense + supply expense) by the greatest common denominator (GCD).

Step 1, Part 2: Divide total sample indirect cost (visit minutes) by the GCD.

Step 2: Calculate the total cost for each visit, a seven-part process. Step 2, Part 1: Calculate the total projected direct RVUs by multiplying the direct RVUs per visit by the projected volume per visit.

Step 2, Part 2: Calculate the total projected indirect cost drivers by multiplying the indirect RVUs per visit by the projected volume per visit.

Step 2, Part 3: Calculate the direct cost per RVU by dividing direct costs by total direct RVUs. $5,000,000 190,000 = $26.32

Step 2, Part 4: Calculate the indirect cost per cost driver by dividing indirect costs by total cost drivers. $1,000,000 83,000 = $12.05

Step 2, Part 5: Calculate the direct cost per procedure by multiplying the direct cost per RVU by the direct RVUs in each procedure.

Step 2, Part 6: Calculate the indirect cost per visit by multiplying the indirect cost per cost driver by the indirect cost drivers in each procedure.

Step 2, Part 7: Calculate the total cost per procedure by adding the direct cost per procedure and the indirect cost per procedure. (Nowicki 187-190)

Nowicki, Michael. Introduction to the Financial Management of Healthcare Organizations, Seventh Edition, 7th Edition. Gateway to Healthcare Management, 20170609. VitalBook file.