Calculate the budgeted cost per service for x-rays


Problem:

Department and activity-cost rates, service sector. Roxbury's Radiology Center (RRC) performs X-rays, ultrasounds, CT scans, and MRIs. RRC has developed a reputation as a top Radiology Center in the state. RRC has achieved this status because it constantly reexamines its processes and procedures. RRC has been using a single, facility-wide overhead allocation rate. The VP of Finance believes that RRC can make better process improvements if it uses more disaggregated cost information. She says, "We have state of the art medical imaging technology. Can't we have state of the art accounting technology?"

Roxbury's Radiology Center
Budgeted Information
For the Year Ended May 30, 2011


X-rays

Ultrasound

CT scan

MRI

Total

Technician labor

$ 64,000

$104,000

$119,000

$106,000

$ 393,000

Depreciation

136,800

231,000

400,200

792,000

1560,000

Materials

22,400

16,500

23,900

30,800

93,600

Administration





19,000

Maintenance





260,000

Sanitation





267,900

Utilities





121,200


$223,200

$351,500

$543,100

$928,800

$2,714,700

Number of procedures

2,555

4,760

3,290

2,695


Minutes to clean after each procedure

10

10

20

40


Minutes for each procedure

5

20

15

40


RRC operates at capacity. The proposed allocation bases for overhead are as follows:

Administration

Number of procedures

Maintenance (including parts)

Capital cost of the equipment (use Depreciation)

Sanitation

Total cleaning minutes

Utilities

Total procedure minutes

1. Calculate the budgeted cost per service for X-rays, Ultrasounds, CT scans, and MRIs using direct technician labor costs as the allocation basis.

2. Calculate the budgeted cost per service of X-rays, Ultrasounds, CT scans, and MRIs if RRC allocated overhead costs using activity-based costing.

3. Explain how the disaggregation of information could be helpful to RRC's intention to continuously improve its services.

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Accounting Basics: Calculate the budgeted cost per service for x-rays
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