please answer letter E

P42.-LO.3-LO.5 (Cost drivers; ABC; analysis) Boerne Community Hospital has been under increasing pressure to be accountable for its patient charges. The hospital's current pricing system is ad hoc, based on pricing norms for the geographical area; only direct costs for surgery, medication, and other treatments are explicitly considered. The hospital's controller has suggested that the hospital improve pricing policies by seeking for services less arbitrary. As a first step, the controller has determined that most costs can be assigned to one of three cost pools. The three cost pools follow along with the estimated amounts and activity drivers. Activity Center Professional Salaries Amount $12,125,000 3,187,500 Activity Driver Professional hours Quantity 65,000 hours 46,250 sq. ft Building Costs Square feet used Risk management 750,000 Patients Served 3,500 patients The hospital provides in three broad categories. The services follow with their volume measures for the activity centers. Service Professional Hours Square Feet Number of Patients Surgery 2,750 12,500 400 Housing Patients 70,000 26,500 1,250 Outpatient Care 2,250 17,250 850 a. What bases might be used as cost drivers to allocate the service center costs among the patients served by the hospital? Defend your selections. Professional hours: Cost driver should be used as professional hours. Housing patients: Cost driver should be used as number of patients. Outpatient care: Cost driver should be used as professional hours. b. The hospital currently charges as "add-on" rate calculated using professional hours to patients' direct charges. What rate is Boerne Community Hospital charging per hour? (Round to the nearest dollar.) Computation of hospital charges per hour Total ost= 12,125,000+3,187,500+750,000 = 16062500 Cost per hour= 16,062,500/65,000 = $247 c. Determine the allocation rates for each activity center cost pool. Computation of the allocation rates for each activity center cost pool Professional Salaries= 12,125,000/65,000 = 186 Building Costs= 3,187,500/46,250 = 69 Risk management=750,000/ 3,500=214 d. Allocate the activity center costs to the three services provided by the hospital. Computation of the activity center costs Computation of the activity center costs surgery: (2,750*186) +(12,500*69) +(400*214)=1,459,600 Housing: 70,000*186+26500*69+1250*214- 15,116,000 Outpatient care: 2,250*186+17,250*69+850*214- 1,790,650 e. Boerne Community Hospital has decided to estimate costs by activity center using professional hours. What is the cost per professional hour of each service? What would cause the cost per hour difference for the three services? (Round to the nearest dollar.)