Rashaad's Radiology Centre (RRC) performs X-rays, ultrasounds, CT scans, and MRIs. RRC has developed a reputation as a top radiology centre in the area. RRC has achieved this status because it constantly reexamines its processes and procedures. RRC has been using a single, facility-wide overhead allocation rate. The VP of Finance believes that RRC can make better process improvements if it uses more disaggregated cost information. She says, "We have state-of-the-art medical imaging technology. Can't we have state-of-the-art accounting technology?"

The following budgeted information is available.

Rashaad's Radiology Centre
Budgeted Information
For the Year Ending May 30
	X-Rays	Ultrasound	CT Scan	MRI	Total
Technician labour	$62,000	$106,500	$98,000	$109,000	$375,500
Depreciation	32,100	271,000	436,000	891,000	1,630,100
Materials	22,600	16,300	23,700	31,300	93,900
Administration					23,000
Maintenance					243,000
Sanitation					195,000
Utilities					133,000
Totals	$116,700	$393,800	$557,700	$1,031,300	$2,693,500
Number of procedures	4,100	4,300	3,200	2,100
Minutes to clean after each procedure	10	5	15	30
Minutes for each procedure	10	20	25	50

RRC operates at capacity. The proposed allocation bases for overhead are as follows:

Administration	Number of procedures
Maintenance (including parts)	Capital cost of the equipment (depreciation)
Sanitation	Total cleaning minutes
Utilities	Total procedure minutes

Required answers.

1.	Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans, and MRIs using direct technician labour as the cost allocation base.
2.	Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans, and MRIs if RRC allocated overhead costs using ABC.
3.	Explain how the disaggregation of information could be helpful to RRC's intention to continuously improve its services.

Requirement 1. Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans, and MRIs using direct technician labour costs as the allocation base.Determine the formula to calculate the overhead costs allocated to each service. Next, calculate the indirect costs allocated to each service. (Do not round until the final amount; then round the costs allocated to the nearest whole number.)

Now calculate the total budgeted costs for each service and the budgeted cost per each service using direct technician labor costs as the allocation basis. (Round the budgeted cost per service to the nearestcent.)

Requirement 2. Calculate the budgeted cost per service ofX-rays, ultrasounds, CTscans, and MRI if RRC allocated overhead costs usingactivity-based costing.

Begin by calculating the cost driver rate per activity. (Round the answers to five decimalplaces, "X.XXXXX".)

Now calculate the budgeted cost for each service and the budgeted cost per service usingactivity-based costing. (Round costs to the nearest whole dollar. Then round the cost per service to the nearestcent.)

Requirement 3. Explain how the disaggregation of information could be helpful toRRC's intention to continuously improve its services.

Using the disaggregatedactivity-based costingdata,

A.

Managers can see that the CT scans are extremely more costly than thex-rays, ultrasounds, orMRI's. This causes managers to focus on ways of reducing the number of procedures so costs can stay at a minimum.

B.

Managers can see that theX-ray actually costs substantially more than theMRI, ultrasounds, and CT scans. This is why the number of procedures for this method of activity is the lowest for each group of activity.

C.

Managers can see that the MRI actually costs substantially more andx-rays, ultrasounds, and CT scans substantially less than the traditional system indicated. Managers should examine the use of maintenance and sanitation activities to search for ways to reduce the activity costs.

D.

Managers can see that the ultrasounds actually cost the same as the other group of activities. Managers should feel indifferent in trying to obtain ways to continuously improve in this area.