QUESTION 6 The Looney Tunes Hospital ("LTH") provides medical treatment to patients under two broad categories - Normal and Emergency. Billings (sales) information for each category of patients are as follows: Total billings (sales) Category Normal treatment Emergency treatment Mark-up on Cost of Sales 25% 50% $10,000,000 $12,000,000 The management of LTH is currently using a simple system of allocating indirect costs based on number of cases processed. Lately, the management is increasingly concerned with rising costs involved in serving its patients. As a result, a study was conducted to analyse the billings and costs for each category of patients. An activity analysis of the indirect costs identified the following: Activity cost Cost driver pool Medication No. of prescriptions Cases processing No. of cases Surgery No. of operations Use of drive Normal Emergency treatment treatment 18,000 6,000 12,500 2,500 200 1,800 Total usage 24,000 15,000 2,000 Estimated indirect cost ($) 480,000 360,000 3,600,000 4,440,000 Required: a) Calculate the gross profit and gross profit margin for each category of patients. (Round the gross profit margins to the nearest %) (3 marks) b) Using the current method, calculate the indirect cost rate and allocate it to each category of patients. (1% marks) c) For each activity cost pool, calculate the activity cost rate. (1% marks) d) Assign the activity cost rates to each category of patients