Health Essential Company is a five year old non-profit organization specializing in the treatment of three types of disorders, anorexia, acute anxiety, and substance abuse.It is a 150 bed facility and, for the past three years, has always been fully occupied.Patients sleep at the center until they are released.Patients stay for varying lengths of time, although patients in the Anorexia program generally stay the longest.On average, Anorexia patients stay for six months, Anxiety patients stay for two months and Substance abuse patients stay for four months.The facility consists of a building with three wings.The Anorexia wing holds 50 beds, the Anxiety wing holds 60 beds and the Substance Abuse wing holds 40 beds.

To be allowed into the non-profit-organization, any person applying for treatment needs to commit to staying at the facility for the full length of the treatment process.Patients can always drop out the treatment program before the process is completed, but patients are then told that they may not reenter that treatment program in the future.There has been a long waiting list of people trying to enter each of the three programs for the past three years.

Since the creation of Health Essential Company, the center has calculated the cost per patient by taking total costs of the center and dividing it by the number of patients.One of the administrators has pointed out that the different programs use different amounts of resources.Therefore, the accounting system is very inaccurate in assuming that the cost per patient is the same across programs.Therefore, the center has decided to calculate the cost per patient for each of its three programs.The administrator believes that improved information on costs per patient will be useful in decision making and planning and control of costs.

The organization hires nurses, disorder specialists, and physicians.Nurses are each paid $75,000 per year; disorder specialists are each paid $125,000 per year, and physicians are each paid $150,000 per year.The chart below shows how many people work in each of the treatment centers and the number of beds in each treatment center.The number of beds represents the number of beds in a treatment center that are completely occupied for the entire year.So for example, if a person on average stays 4 months, then three patients would have occupied that one bed over the course of the year.

AnorexiaAnxiety Substance Abuse

Nurses 24 6

Disorder specialists54 4

Physicians 62 4

Beds 5060 40

Consequently, total labor costs are $4,325,000.

Overhead costs for the facility are broken down into two types.One category is "medicines and medical supplies" and the other is category is "other"."Other" includes items such as rent, laundry, food, electricity, and payments for cleaning services.The overhead costs for medicines and medical supplies are $4,500,000 and other overhead costs are $3,460,000.Medicines and medical supplies overhead costs are allocated to treatment centers on the basis of physician labor costs.Other overhead costs are allocated on the basis of total labor costs.

(1)Calculate the overhead rate for the "medicines and medical supplies" overhead cost pool and the overhead rate for the "other" overhead cost pool.

(2)Determine the total costs associated with each of the three programs.(Hence each program is viewed as a cost object and you are being asked to determine the total cost associated with each of those three cost objects.)

(3)Calculate the cost per patient for each of the three treatment centers.

(4)How can the accounting system be improved to more accurately determine the cost per patient for each treatment center?