E10-24

Deer Lodge Regional Hospital plans to use activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs:

Activity Activity Rate

Room and meals $225 per day

Radiology $300 per image

Pharmacy $50 per physician order

Chemistry lab $125 per test

Operating room $ 3,000 per operating room hour

The records of two representative patients were analyzed, using the activity rates. The activity information associated with the two patients is as follows:

Patient Franklin Patient Kramer

Number of days 1 day 4 days

Number of images 2 images 5 images

Number of physician orders 1 order 8 orders

Number of tests 2 tests 5 tests

Number of operating room hours 0.6 hours 2.8 hours

1. Determine the activity cost associated with each patient.
2. Why is the total activity cost different for the two patients?