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Sowetan Hill (SH) is a small private hospital in the south of Johannesburg that has been servicing its community for the past 10 years. The
Sowetan Hill (SH) is a small private hospital in the south of Johannesburg that has been servicing its community for the past 10 years. The practice offers a variety of services, but it is popular for two types of procedures on patients, i.e., root canals (RC) from the dental division and child delivery (CD). Each type of procedure incurs the following direct costs: SH currently calculates the overhead cost per procedure by taking the total overhead cost and simply dividing it by the number of procedures, then rounding the cost to the nearest two (2) decimal places. Using this method, the total cost is R2,475.85 for Procedure RC and R4,735.85 for Procedure CD. Recently, another local hospital has implemented activity-based costing (ABC). This has led the finance manager at SH to consider whether this alternative costing technique would bring any benefits to SH. She has obtained an analysis of SH s total overheads for the last year and some additional data, all of which is shown below: Assume that a patient has only one procedure per hospital visit, Required: a) Calculate the full cost per procedure using activity-based costing. (14) b) Based on your findings in (a), advise the finance director as to whether activity-based costing should be implemented at SH. (6)
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