Product Costing and Decision Analysis for a Service Company Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its “products.” The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Activity Budgeted Activity Cost Activity Base Scheduling and admitting $432,000 Number of patients Housekeeping 4,212,000 Number of patient days Nursing 5,376,000 Weighted care unit Total costs $10,020,000 Total “patient days” are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The average patient is expected to have a little more than a four-day stay in the hospital.) During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows: Activity-Base Usage Procedure A Number of patients 280 Average length of stay x 6 days Patient days 1,680 Weighted care units 19,200 Procedure B Number of patients 650 Average length of stay x 5 days Patient days 3,250 Weighted care units 6,000 Procedure C Number of patients 1,200 Average length of stay x 4 days Patient days 4,800 Weighted care units 24,000 Private insurance reimburses the hospital for these activities at a fixed daily rate of $406 per patient day for all three procedures. Required: 1. Determine the activity rates. Activity Activity Rate Scheduling and admitting $fill in the blank 1 per patient Housekeeping $fill in the blank 2 per pd Nursing $fill in the blank 3 per wcu 2. Determine the activity cost for each procedure. Activity Total Activity Cost by Procedure Procedure A $fill in the blank 4 Procedure B $fill in the blank 5 Procedure C $fill in the blank 6 3. Determine the excess or deficiency of reimbursements to activity cost. Activity Excess (deficiency) of reimbursement over activity cost Procedure A $fill in the blank 7 Procedure B $fill in the blank 8 Procedure C $fill in the blank 9
Product Costing and Decision Analysis for a Service Company
Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its “products.” The
| Activity | Budgeted Activity Cost | Activity Base |
| Scheduling and admitting | $432,000 | Number of patients |
| Housekeeping | 4,212,000 | Number of patient days |
| Nursing | 5,376,000 | Weighted care unit |
| Total costs | $10,020,000 |
Total “patient days” are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The average patient is expected to have a little more than a four-day stay in the hospital.)
During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows:
| Activity-Base Usage | ||
| Procedure A | ||
| Number of patients | 280 | |
| Average length of stay | x 6 | days |
| Patient days | 1,680 | |
| Weighted care units | 19,200 | |
| Procedure B | ||
| Number of patients | 650 | |
| Average length of stay | x 5 | days |
| Patient days | 3,250 | |
| Weighted care units | 6,000 | |
| Procedure C | ||
| Number of patients | 1,200 | |
| Average length of stay | x 4 | days |
| Patient days | 4,800 | |
| Weighted care units | 24,000 |
Private insurance reimburses the hospital for these activities at a fixed daily rate of $406 per patient day for all three procedures.
Required:
1. Determine the activity rates.
| Activity | Activity Rate | |
| Scheduling and admitting | $fill in the blank 1 | per patient |
| Housekeeping | $fill in the blank 2 | per pd |
| Nursing | $fill in the blank 3 | per wcu |
2. Determine the activity cost for each procedure.
| Activity | Total Activity Cost by Procedure |
| Procedure A | $fill in the blank 4 |
| Procedure B | $fill in the blank 5 |
| Procedure C | $fill in the blank 6 |
3. Determine the excess or deficiency of reimbursements to activity cost.
| Activity | Excess (deficiency) of reimbursement over activity cost |
| Procedure A | $fill in the blank 7 |
| Procedure B | $fill in the blank 8 |
| Procedure C | $fill in the blank 9 |
4. Based on the determination of the excess or deficiency of reimbursement to activity cost, indicate which procedure cost is too high.
Procedure AHospital management has decided to further investigate the nursing effort. Determine the weighted care units per patient day for each procedure. Round to one decimal place.
Procedure A fill in the blank 11 weighted care units per patient day
Procedure B fill in the blank 12 weighted care units per patient day
Procedure C fill in the blank 13 weighted care units per patient day
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