Lancaster Orthopedics specializes in hip, knee, and shoulder replacement surgery. In addition to the actual surgery, the company provides its patients with preoperative and postoperative inpatient care in a fully equipped hospital. Lancaster pays its surgeons a fixed fee for each surgical procedure they perform.

The company provides doctors and patients a variety of support services during treatment and allocates the cost of these activities through the companys costing system, which uses a single overhead rate. Currently, the company uses an allocation rate of 48% of the surgical fee charged to the patient.

Managers have expressed concern that the current system is producing inaccurate costs and profitability for the joint replacement procedures. As a result, Bree Lancaster, the companys controller, initiated a study to explore the potential for implementing an activity-based costing system. She has collected the following data on each of the procedures.

	Hip	Knee	Shoulder
Fee charged to patient	$10,000	$12,000	$8,000
Number of procedures per year	1,000	500	600
Average time per procedure	4.0 hours	1.0 hour	2.0 hours
Number of procedures per operating room session	2	1	4
Inpatient days per procedure	4	3	2
Surgeons fee per procedure	$1,200	$1,800	$1,500
Medical supplies per procedure	$400	$200	$300

After analyzing the companys support activities, Bree determined that five activity cost pools would be sufficient for the company. The proposed activity cost pools, along with the proposed cost drivers, are presented below.

Activity	Cost Driver	Total Cost
Operating room preparation	Number of sessions	$943,000
Operating room use	Procedure time	1,567,500
Nursing and ancillary services	Inpatient days	4,221,000
Administration	Sales revenue	2,496,000
Miscellaneous	Number of procedures	798,000
		$10,025,500

1. Calculate the profit per procedure for each of the three procedures using the current basis for allocating overhead.
2. Calculate the profit per procedure for each of the three procedures using the proposed activity-based costing system.
3. Discuss the causes of the difference in profitability between the two costing systems.
4. Based on the profit calculations, what action do you recommend?

PLEASE ANSWER ALL PARTS, I need this as an example to learn please