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Question 1: Cathal's Private Hospital (CPH) is a well-known and highly reputable provider of a range of orthopaedic surgeries to Irish patients. The hospital has been in operation for ten years and during that time has streamlined all of its services and most of its administrative functions. The hospital accountant is keen to ensure best practice in the finance function, particularly in costing the various surgeries that are conducted and is considering the introduction of activity based costing (ABC). CPH currently applies a traditional approach to costing surgeries by attributing direct costs as far as possible and allocating hospital overheads based on the patient's average length of stay (ALOS) in the hospital. Total hospital overheads for the year are budgeted at 4,801,226 and the total budgeted ALOS for all patients for the year is 23,375 days. To facilitate the introduction of ABC the hospital accountant has analysed all of the overheads incurred into six categories of expense and has also established the cause or driver of the expense as shown in the table below: Expense category Cause (driver) of expense X-ray department costs Number of X-rays provided Hospital Consultant costs Number of meetings with Hospital Consultant Operating theatre costs Number of hours spent in operating theatre Physiotherapy costs Number of physiotherapy sessions Occupational therapy costs Number of occupational therapy sessions Sundry hospital costs Average length of stay in the hospital (ALOS) Budgeted data relating to the expense categories has also been compiled by the hospital accountant and is as follows: X-ray department costs 1,008,320 Hospital Consultant costs 960.267 Operating theatre costs 1,104,430 Physiotherapy costs 624,143 Occupational therapy costs 528,106 Sundry hospital costs 575,960 Total X-rays provided Total physiotherapy sessions Total occupational therapy sessions 6,302 15.223 15,003 Total occupational therapy sessions 15,003 Total hours in operating theatre 9,154 Total meetings with Hospital Consultants 8,314 Information relating to two surgeries conducted during the year is given below: Knee surgery Hip surgery Direct materials cost 425 960 ALOS 3.5 days 4.2 days Number of X-rays 2 Meetings with Hospital Consultant 2 meetings 4 meetings Physiotherapy 4 sessions 5 sessions Occupational therapy 3 sessions 5 sessions Theatre time 1.25 hours 2 hours You are required to: (a) Calculate the total cost of each of the two surgeries noted above using: The costing approach currently used by Cathal's Private Hospital (5 Marks) Activity based costing (15 Marks) (b) Comment in detail on your answers in (a) (i) and (in) above. (10 marks) Total (30 Marks)