Simmy is a privately owned profit seeking hospital that specialises in operations to replace hip and...

 

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Simmy is a privately owned profit seeking hospital that specialises in operations to replace hip and knee joints. Simmy traditionally determines its prices by adding a 10% mark-up to the budgeted full cost of an operation. The fixed overheads are absorbed on the basis of operating hours using a predetermined rate. Simmy Operating and Financial Data 2018 Hip Knee Total operating capacity (hours) Total 10,800 Theatre utilisation ratio 70% Average duration of operation 3.0 hours Number of operations taken 3-6 hours 1270 Total Costs Fixed overheads 15,036,780 12,000,000 * not given The variable costs per operation are as budgeted. Fixed overhead Annual operating hours Simmy Budgeted Data for 2018 Hip Knee Total 12,000,000 8,000 Variable cost per operation * not given Required: 1,450 (a) Calculate the number of hip operations undertaken during the year and the variable cost of performing a knee operation. (b) Calculate the prices that Simmy would have charged in 2018 for: (i) A hip operation; (5 marks) (ii) A knee operation (5 marks) (c) An activity based costing study recently discovered that the fixed overheads are determined by non operating time related activities. The study revealed the following data: Activity Cost Driver Hip Knee Fixed Overheads Consultations with potential patients Number of consultations X-rays 3,000 2,000 8,980,000 Post-operative care Number of X-rays Days of care 6,200 6,200 1,800,000 7,860 23,580 1,220,000 Required: Re-calculate the prices that would have been charged in 2018 for each knee and hip operation by using an activity based costing approach. (5 marks) (d) Compare the results of your calculated prices in (b) and (c) and suggest with reasons what pricing decisions you would recommend to the hospital. (5 marks) Simmy is a privately owned profit seeking hospital that specialises in operations to replace hip and knee joints. Simmy traditionally determines its prices by adding a 10% mark-up to the budgeted full cost of an operation. The fixed overheads are absorbed on the basis of operating hours using a predetermined rate. Simmy Operating and Financial Data 2018 Hip Knee Total operating capacity (hours) Total 10,800 Theatre utilisation ratio 70% Average duration of operation 3.0 hours Number of operations taken 3-6 hours 1270 Total Costs Fixed overheads 15,036,780 12,000,000 * not given The variable costs per operation are as budgeted. Fixed overhead Annual operating hours Simmy Budgeted Data for 2018 Hip Knee Total 12,000,000 8,000 Variable cost per operation * not given Required: 1,450 (a) Calculate the number of hip operations undertaken during the year and the variable cost of performing a knee operation. (b) Calculate the prices that Simmy would have charged in 2018 for: (i) A hip operation; (5 marks) (ii) A knee operation (5 marks) (c) An activity based costing study recently discovered that the fixed overheads are determined by non operating time related activities. The study revealed the following data: Activity Cost Driver Hip Knee Fixed Overheads Consultations with potential patients Number of consultations X-rays 3,000 2,000 8,980,000 Post-operative care Number of X-rays Days of care 6,200 6,200 1,800,000 7,860 23,580 1,220,000 Required: Re-calculate the prices that would have been charged in 2018 for each knee and hip operation by using an activity based costing approach. (5 marks) (d) Compare the results of your calculated prices in (b) and (c) and suggest with reasons what pricing decisions you would recommend to the hospital. (5 marks)

Answer rating: 100% (QA)

a Calculating the number of hip operations undertaken during the year and the variable cost of performing a knee operation Number of hip operations To... View the full answer