(Solved by Humans)-Problem 18-56 ACTIVITY COSTING, ASSIGNING RESOURCE COSTS, PRIMARY AND SECONDARY ACTIVITIES...

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Problem 18-56 ACTIVITY COSTING, ASSIGNING RESOURCE COSTS, PRIMARY AND SECONDARY ACTIVITIES Trinity Clinic has identified three activities for daily maternity care: occupancy and feed- ing, nursing, and nursing supervision. The nursing supervisor oversees 150 nurses, 25 of whom are maternity nurses (the other nurses are located in other care areas such as the emergency room and intensive care). The nursing supervisor has three assistants, a secre- tary, several offices, computers, phones, and furniture. The three assistants spend 75 per- cent of their time on the supervising activity and 25 percent of their time as surgical nurses. They each receive a salary of $48,000. The nursing supervisor has a salary of $70,000. She spends 100 percent of her time supervising. The secretary receives a salary of $22,000 per year. Other costs directly traceable to the supervisory activity (deprecia- tion, utilities, phone, etc.) average $100,000 per year. Daily care output is measured as ‘‘patient days.’’ The clinic has traditionally assigned the cost of daily care by using a daily rate (a rate per patient day). Different kinds of daily care are provided, and rates are structured to reflect these differences. For example, a higher daily rate is charged for an intensive care unit than for a maternity care unit. Within units, however, the daily rates are the same for all patients. Under the traditional, functional approach, the daily rate is computed by dividing the annual costs of occupancy and feeding, nursing, and a share of supervision by the unit’s capacity expressed in patient days. The cost of supervision is assigned to each care area based on the number of nurses. A single driver (patient days) is used to assign the costs of daily care to each patient. A pilot study has revealed that the demands for nursing care vary within the mater- nity unit, depending on the severity of a patient’s case. Specifically, demand for nursing services per day increases with severity. Assume that the maternity unit has three levels of increasing severity: normal patients, cesarean patients, and patients with complications. The pilot study provided the following activity and cost information: Activity                                     Annual Cost ($)             Activity Driver              Annual Quantity Occupancy and feeding 1,000,000 Patient days 10,000 Nursing care (maternity) 950,000 Hours of nursing care 50,000 Nursing supervision ? Number of nurses 150   The pilot study also revealed the following information concerning the three types of patients and their annual demands:   Patient Type Patient Days Demanded Nursing Hours Demanded Normal 7,000 17,500 Cesarean 2,000 12,500 Complications   1,000 20,000 Total 10,000 50,000 Required: 1.    Calculate the cost per patient day by using a functional-based approach. 2.     Calculate the cost per patient day by using an activity-based approach. 3.    The hospital processes 1,000,000 pounds of laundry per year. The cost for the laun- dering activity is $500,000 per year. In a functional-based cost system, the cost of the laundry department is assigned to each user department in proportion to the pounds of laundry produced. Typically, maternity produces 200,000 pounds per year. How much would this change the cost per patient day calculated in Require- ment 1? Now, describe what information you would need to modify the calculation made in Requirement 2. Under what conditions would this activity calculation pro- vide a more accurate cost assignment?