Problem
I-support runs two programmes for at risk patients: heart care and general well-being. The centre's budget for 2017 follows:
Professional salaries
5 physicians x $125,000 10 psychologists x $80,000 16 nurses x $60,000
$625,000 $800,000 $960,000
Total Costs
$2,385,000 $132,000 $136,500
$88,000 $40,000 $84,000
$2,865,500
Medical supplies
Rent and Clinic maintenance
Administrative costs to manage patient charts, food, laundry Staff Training (1 every 3 months)
Laboratory services
The Director of the centre, Jake Marshall, is keen on determining the cost of each programme. While at a recent symposium at University of Auckland, Jake heard of activity-based costing as a method to refine costing systems. He collected the following information but needs your help to understand how to apply this technique:
|
Heart
|
Well-being
|
Total
|
|
Physicians
|
4
|
1
|
5
|
|
Psychologists
|
4
|
6
|
10
|
|
Nurses
|
6
|
10
|
16
|
|
Square metre of space occupied by each programme
|
9,000
|
12,000
|
21,000
|
|
No. of patients
|
50
|
60
|
110
|
|
Number of laboratory tests
|
1,400
|
700
|
2,100
|
Required:
Write a formal report for Jake, no longer than 3 pages long, explaining the ABC technique. Your report should include the following:
a) The benefits of implementing ABC at I-Support
b) An explanation of cost hierarchies (Identify the level of activities for the costs mentioned above)
c) An explanation of the cost-allocation bases that would be most appropriate for allocating indirect costs to the programmes at I-Support together with the calculation for the indirect cost rates.
d) Detailed calculation of the budgeted cost for each programme and the cost of each programme per patient.
e) An explanation of the factors other than cost that I-support should consider in allocating resources to its programmes?