Boerne Community Hospital has been under increasing pressure to be accountable for its patient charges. The hospital's current pricing system is ad hoc, based on pricing norms for the geographical area; only direct costs for surgery, medication, and other treatments are explicitly considered. The hospital's controller has suggested that the hospital improve pricing policies by seeking a tighter relationship between costs and pricing. This approach would make prices for services less arbitrary. As a first step, the controller has determined that most costs can be assigned to one of three cost pools. The three cost pools follow along with the estimated amounts and activity drivers.
| Activity Center |
Amount |
Activity Driver |
Quantity |
| Professional salaries |
$13,005,200 |
Professional hours |
79,300 |
Hours |
| Building costs |
5,709,290 |
Square feet used |
55,430 |
sq. ft. |
| Risk management |
949,620 |
Patients served |
2,660 |
patients |
The hospital provides service in three broad categories. The services follow with their volume measures for the activity centers.
| Service |
Professional Hours |
Square Feet |
Number of Patients |
| Surgery |
3,310 |
12,120 |
565 |
| Housing patients |
74,030 |
27,260 |
1,230 |
| Outpatient care |
1,960 |
16,050 |
865 |
a. What bases might be used as cost drivers to allocate the service center costs among the patients served by the hospital? Defend your selections.
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
b. The hospital currently charges an ''add-on'' rate calculated using professional hours to patients' direct charges. What rate is Boerne Community Hospital charging per hour? Round to the nearest dollar.
$ per professional hour
c. Determine the allocation rates for each activity center cost pool.
| Professional salaries |
$ per hr. |
| Building costs |
$ per sq. ft. |
| Risk management |
$ per patient |
d. Allocate the activity center costs to the three services provided by the hospital.
| Surgery |
$ |
| Housing |
$ |
| Outpatient care |
$ |
e. Boerne Community Hospital has decided to estimate costs by activity center using professional hours. What is the cost per professional hour of each service? Round to the nearest dollar.
| Surgery |
$ per professional hour |
| Housing |
$ per professional hour |
| Outpatient care |
$ per professional hour |
What would cause the cost per hour difference for the three services?
- Select your answer -Random variations in usage account for the cost per hour differences.More of the cost of housing patients are fixed and are spread over a larger number of hours.More of the surgery and outpatient care costs s fixed and it is spread over a larger number of hours.Volume of production in unitsNumber of production process changesNumber of production schedule changesItem 12