Part B: Activity Based Costing

I-support runs two programmes for at risk patients: heart care and general well-being. The centres budget for 2017 follows:

Professional salaries Total cost 5 physicians x $125,000 $625,000

10 psychologists x $80,000 $800,000

16 nurses x $60,000 $960,000

$2,385,000

Medical supplies $132,000

Rent and Clinic maintenance $136,500

Administrative costs to manage patient charts $88,000

food, laundry Staff Training (1 every 3 month) $40,000

Laboratory services $84,000

$2,865,500

The Director of the centre, Jake Marshall, is keen on determining the cost of each programme. While at a recent symposium at University of Auckland, Jake heard of activity-based costing as a method to refine costing systems. He collected the following information but needs your help to understand how to apply this technique:

	Heart	Well-being	Total
Physicians	4	1	5
Psychologists	4	6	10
Nurses	6	10	16
Square metre of space occupied by each programme	9,000	12,000	21,000
No. of patients	50	60	110
Number of laboratory tests	1,400	700	2,100

Required:

Write a formal report for Jake, no longer than 3 pages long, explaining the ABC technique. Your report should include the following:

a) The benefits of implementing ABC at I-Support

b) An explanation of cost hierarchies (Identify the level of activities for the costs mentioned

above)

c) An explanation of the cost-allocation bases that would be most appropriate for

allocating indirect costs to the programmes at I-Support together with the calculation

for the indirect cost rates.

d) Detailed calculation of the budgeted cost for each programme and the cost of each

programme per patient.

e) An explanation of the factors other than cost that I-support should consider in allocating

resources to its programmes?