Question:
Rest Haven is a senior living community that provides a full range of services including independent living, assisted living, and skilled nursing care. The assisted living division gives residential space, meals, and medical services (MS) to its residents. The present costing system adds the cost of all of these services (space, MS, and meals) and divides by total resident days to get a cost per resident day for each month. Recognizing that MS tends to vary considerably among the residents, Cumberland's accountant recommended that an ABC system be designed to evaluate more accurately the cost of MS provided to residents. She decided that residents could be classified into four categories (A, B, C, D) based on the level of services received, with group A showing the lowest level of service and D representing the highest level of service. Two cost drivers being considered for measuring MS costs are number of assistance calls and number of assistant contacts. A contact is registered each time an assistance professional provides medical services or aid to a resident. The accountant has gathered the subsequent data for the most recent annual period:
Resident classification annual resident days annual assistant hours number of assistance contacts
A $8,760.00 $15,000.00 $60,000.00
B $6,570.00 $20,000.00 $52,000.00
C $4,380.00 $22,500.00 $52,000.00
D $2,190.00 $32,500.00 $52,000.00
$21,900.00 $90,000.00 $216,000.00
Other data: Total cost of medical services for the period .......... $2,500,000
Total cost of meals and residential space ............................. $2,000,000
Required
a. Evaluate the ABC cost of a resident day for each category of residents using assistance hours as the cost driver.
b. Evaluate the ABC cost of a resident day for each category of residents using assistance contacts as the cost driver.
c. Which cost driver do you think gives the more accurate measure of the cost per day for a Rest Haven resident?