Mercy Hospital plans to use activity-based costing to assignhospital indirect co
ID: 2457751 • Letter: M
Question
Mercy Hospital plans to use activity-based costing to assignhospital indirect costs to the care of patients. The hospitalhas indentified the following activities and activity rates for thehospital indirect costs:
Activity Activity Rate
Room andmeals $165 per day
Radiology $250 per image
Pharmacy $45 per physician order
Chemistrylab $85 per test
Operatingroom $680 per operating room hour
The records of two representative patients were analyzed, usingthe activity rates. The activity information associated withthe two patients is as follows:
PatientMalone Patient Talbot
Number ofdays 8days 4 days
Number ofimages 5images 3 images
Number of physicianorders 6orders 2 orders
Number oftests 7tests 3 tests
Number of operating roomhours 4.5hours 2 hours
Explanation / Answer
Patient Malone Number * Rate 8 days *165 1,320 5 images *250 1,250 6 orders *45 270 7 tests * 85 595 4.5 hrs * 680 3,060 Total activity cost 6,495 Patient Talbot Number * Rate 4 days * 165 660 3 images * 250 750 2orders * 45 90 3 tests * 85 255 2 hrs * 680 1,360 Total activity cost 3,115 B. Activity based costing system is based on the individualactivities as the fundamental cost objects. Hence , here thepatient usage is different and so the total activity costs are.