Vaughn Orthopedics specializes in hip, knee, and shoulder replacement surgery. In addition to the actual surgery, the company provides its patients with preoperative and postoperative inpatient care in a fully equipped hospital. Vaughn pays its surgeons a fixed fee for each surgical procedure they perform.

The company provides doctors and patients a variety of support services during treatment and allocates the cost of these activities through the company's costing system, which uses a single overhead rate. Currently, the company uses an allocation rate of 65% of the surgical fee charged to the patient.

Managers have expressed concern that the current system is producing inaccurate costs and profitability for the joint replacement procedures. As a result, Bree Vaughn, the company's controller, initiated a study to explore the potential for implementing an activity-based costing system. She has collected the following data on each of the procedures.

El X m WileyPLUS x G hwmscreenshotonwindows- x | + (- -) G i httpswedugenmleyp|u5.comiedugenfstudentfmainfruni 0-: Q * u E a :55 Apps D My NatGen Policy| l I YouTube - Broadcas' Forsyth Tech [I Welcome to Facebot a Google Voice - lnbox @ reddil: the front pa; i lMDb - Movies, TV a @ Bplore more. Web}: M s_ignment > Open Assignment CALCULATOR FULL SCREEN PRINTER VERSION 1 BACK E Hip Knee Shoulder Fee charged to patient $8,070 $10,340 $6,140 Number of procedures per year 600 800 400 Average time per procedure 2.10 hours 1.30 hours 1.50 hours Number of procedures per operating room session 2 1 4 Inpatient days per procedure 3 2 1 Surgeon's fee per procedure $1,260 $1,700 $1,424 Medical supplies per procedure $362 $230 $276 After analyzing the company's support activities, Bree determined that ve activity cost pools would be sufficient for the company. The proposed activity cost pools, along with the proposed cost drivers, are presented below. Activity Cost Driver Total Cost Operating room preparation Number of sessions $874,800 Operating room use Procedure time 1,502,200 ' >