Crosstown Health Center runs two programs: drug addict rehabilitation and aftercare (counseling and support of patients after release from a mental hospital). The centers budget for 2017 follows.

Kim Yu, the director of the center, is keen on determining the cost of each program. Yu compiles the following data describing employee allocations to individual programs:

Yu has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, Gus Gates, how she should apply this technique. Gates obtains the following budgeted information for 2017:

Required:

a. Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the budgeted indirect cost rates for medical supplies; rent and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services. (6 marks)

b. Using an activity-based costing approach to cost analysis, calculate the budgeted cost of each program and the budgeted cost per patient-year of the drug program. (6 marks)

c. What benefits can Crosstown Health Center obtain by implementing the ABC system? (3 marks)

$600,000 900,000 480,000 Professional salaries: 4 physicians x $150,000 12 psychologists > $75,000 16 nurses x $30,000 Medical supplies Rent and clinic maintenance Administrative costs to manage patient charts, food, laundry Laboratory services Total $1,980,000 242,000 138,600 484,000 92,400 $2,937,000 Drug Aftercare Total Employees Physicians Psychologists Nurses 12 Drug Aftercare 12,000 Total 21,000 Square feet of space occupied by each program Patient-years of service Number of laboratory tests 9,000 50 1,400 110 700 2,100