McKinney Medical Center (MMC) performs X-rays, ultrasounds, computer tomography (CT) scans, and magnetic resonance imaging (MRI). MMC has developed a reputation as a top radiology center in the state. MMC has achieved this status because it constantly reexamines its processes and procedures. MMC has been using a single, facility-wide overhead allocation rate. The vice president of finance believes that MMC can make better process improvements if it uses more disaggregated cost information. She says, We have state-of-the-art medical imaging technology. Cant we have state-of-the-art accounting technology? Treat X-rays, Ultrasound, CT Scan and MRI as cost centers.

	McKinney Medical Center's budgeted infromation for the next fiscal year
	X-rays	Ultrasound	CT Scan	MRI	Total
Technician Labor	$ 62,000	$101,000	$155,000	$103,000	$ 421,000
Depreciation	42,240	256,000	424,960	876,800	1,600,000
Materials	22,600	16,400	23,600	31,500	94,100
Administration					20,000
Maintenance					250,000
Sanitation					252,500
Utilities					151,100
	$126,840	$373,400	$603,560	$1,011,300	$2,788,700
Number of procedures	3,842	4,353	2,924	2,482
Minutes to clean after each procedure	5	5	15	35
Minutes for each procedure	5	15	25	40

MMC operates at capacity. The proposed allocation bases under ABC are:

Administration	Number of procedures
Maintenance (includign parts)	Depreciation cost
Sanitation	Total cleaning minutes
Utilities	Total procedure minutes

Required: (6 + 10 + 2 + 4 + 3 = 25 points)

1. Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans, and MRI using direct technician labor costs as the allocation basis.

2 Calculate the budgeted cost per service of X-rays, ultrasounds, CT scans, and MRI if RRC allocated overhead costs using activity-based costing.

3. Explain how the disaggregation of information could be helpful to RRCs intention to continuously improve its services.

4. Calculate the % of over/under costing for each service using ABC cost as benchmark.

5. Demonstrate that the total cost distortion (where cost distortion equals the amount of over/under costing by traditional costing system for all the procedures in that cost center) for the firm equals zero.