Chapter 5, Problem 5.39P

ABC, health care. Crosstown Health Center runs two programs: drug addict rehabilitation and aftercare (counseling and support of patients after release from a mental hospital). The center’s budget for 2017 follows.

Professional salaries:
4 physicians × $150,000	$600,000
12 psychologists × $75,000	900,000
16 nurses × $30,000	480,000	$1,980,000
Medical supplies		242,000
Rent and clinic maintenance		138,600
Administrative costs to manage patient charts, food, laundry		484,000
Laboratory services		92,400
Total		$2,937,000

Kim Yu, the director of the center, is keen on determining the cost of each program. Yu compiles the following data describing employee allocations to individual programs:

Yu has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, Gus Gates, how she should apply this technique. Gates obtains the following budgeted

1. a. Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the budgeted indirect cost rates for medical supplies: rent and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services.

Required

1. b. Using an activity-based costing approach to cost analysis, calculate the budgeted cost of each program and the budgeted cost per patient-year of the drug program.
2. c. What benefits can Crosstown Health Center obtain by implementing the ABC system?
3. 2. What factors, other than cost, do you think Crosstown Health Center should consider in allocating resources to its programs?