CT 12-1 (Static) Allocating fixed costs at Encompass Health Corporation LO12-1, 12-2

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Encompass Health Corporation (formerly HealthSouth Corporation) claims to be a leading provider of integrated healthcare services, offering both facility-based and home-based patient care through our network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies. As of December 31, 2019, our national footprint spans 37 states and Puerto Rico and includes 133 hospitals and 245 home health and 83 hospice locations. As of December 31, 2019, the company derived 76.3 percent of its hospital revenues from inpatient services. During 2019, it treated and discharged 186,842 patients, and the average length of a patients stay was 12.6 days. If one patient occupying one bed for one day represents a patient-day, then Encompass produced 2,354,209 patient-days of output during 2019 (186,842 12.6 = 2,354,209). During this period, Encompass incurred depreciation and amortization costs of $218,700,000. For the purpose of this problem, assume that all of this is depreciation that is related to the property, plant, and equipment of inpatient hospitals.

CT 12-1 (Static) Parts a to e

Required

Indicate whether the depreciation cost is a product (i.e., patient) cost or a general, selling, and administrative cost.

Indicate whether the depreciation cost is fixed or variable cost relative to the volume of production.

Indicate whether the depreciation cost is direct or indirect cost if the cost object is the cost of patient services provided in 2019.

Assume that Encompass incurred depreciation of $18,225,000 during each month of the 2019 fiscal year, but that it produced 212,000 patient-days of service during February and 179,000 patient-days of service during March. Based on monthly costs and service levels, what was the average amount of depreciation cost per patient-day of service provided during each of these two months, assuming each patient-day of service was charged the same amount of depreciation?

If Encompass expected to produce 2,450,000 patient-days of service during 2019 and estimated its annual depreciation costs to be $227,000,000, what would have been its predetermined overhead charge per patient-day of service for depreciation?