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Cost Analysis that Diagio Ltd must produce in order to maximise operating profit (5 +7+8 = 20 Marks) Question 2 Safe Haven Health Centre runs
Cost Analysis
that Diagio Ltd must produce in order to maximise operating profit (5 +7+8 = 20 Marks) Question 2 Safe Haven Health Centre runs two programs. Drug addict rehabilitation and Aftercare counselling and support of patients after release from a mental hospital. The centre's budget for 2020 is as follows: Particulars Amount (S) Amount (5) Professional salaries 4 doctors x S150,000 600,000 12 psychologists x $75,000 900,000 16 nurses x $30,000 480.000 1,980,000 Medical supplies 220,000 Rent and clinic maintenance 126,000 Administrative costs to manage patient charts, food, 440,000 and laundry services Laboratory services 84,000 Total 2,850,000 Jess Bond, the director of the centre, is keen on determining the cost of each program. Jess compiled the following data describing employee allocations to individual programs Particulars Drug addict Aftercare rehabilitation counselling and support Doctors 0 Psychologists 4 8 Nurses 6 10 Jess recently became aware of activity-based costing as a method to refine costing systems. She asks her accountant Daisy Dillard, how she should apply this technique. Daisy obtains the following budgeted information for 2020: Particulars Drug addict Aftercare Total rehabilitation counselling and support Square meters of space occupied by 900 1,200 2,100 each program Patient-years of service 50 60 110 Number of laboratory tests 1.400 700 2.100 Required: (a) Select cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs. (b) Based on the cost-allocation bases selected in requirement (a) above, calculate the indirect cost rates for medical supplies; rent and clinic maintenance; administrative costs for patient charts, food and laundry services and laboratory services. (c) Using an activity-based costing approach to cost analysis, calculate the cost of each program and the cost per patient year of the drug addict rehabilitation program. (d) Note two benefits that Safe Haven Health Centre can obtain by implementing the activity-based costing system? (2+2 +9+ 2 = 15 Marks)Step by Step Solution
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