Hinduja Health Center (HHC) runs three programmes: (1) alcoholic rehabilitation, (2) drug addict rehabilitation, and (3) aftercare (counseling and support of patients after release from a mental hospital).

The HHCs budget for current year follows:

	Rs	Rs
Professional salaries:
4 physicians x Rs 3,00,000	12,00,000
18 psychologists x Rs 1,50,000	27,00,000
20 nurses x Rs 60,000	12,00,000
		51,00,000
Medical supplies		3,00,000
General overhead (administrative salaries, rent, utilities, etc.)		8,80,000
		62,80,000

Dr. Anupam Verma, the Director of the HHC, is keen on determining the cost of each programme. He has compiled the following data describing employees allocations to individual programmes:

	Alcohol	Drug	Aftercare	Total employees
Physicians	-	4	-	4
Psychologists	6	4	8	18
Nurses	4	6	10	20

Eight patients are in residence in the alcohol programme, each staying for about six months. Thus, the clinic provides 40 patients years of service in the alcohol programme. Similarly, 100 patients are involved in the drug programme for about six months each. Thus, the clinic provides 50 patients years of service in the drug programme.

Dr. Verma has recently become aware of activity based costing as a method to refine costing systems. He asks his accountant, Kulkarni, how he should apply this new technique. Kulkarni obtains the following information:

1. Consumption of medical supplies depends on the number of patient years.
2. General Overhead Costs consist of:

	Rs
Rent and clinic maintenance	1,80,000
Administrative costs to manage patient charts, food, laundry	6,00,000
Laboratory services	1,00,000
Total	8,80,000

3. Other information about Individual Departments:

	Alcohol	Drug	Aftercare	Total employee
Square feet of space occupied by each programme	9,000	9,000	12,000	12,000
Patient years of service	40	50	60	150
Number of laboratory tests	400	1,400	70	2,500

Recommend:

1. Using an activity based costing approach to cost analysis, calculate the cost of each programme and the cost per patient year of the alcohol and drug programmes. What benefits can HHC obtain by implementing the ABC system?
2. What factors, other than cost, do you think HHC should consider in allocating resources to its programmes?