Crosstown Health Center runs two programs: drug addict rehabilitation and aftercare (counseling and support of patients after release from a mental hospital). The center's budget for 2017 follows.

Kim Yu, the director of the center, is keen on determining the cost of each program. Yu compiles the following data describing employee allocations to individual programs:

Yu has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, Gus Gates, how she should apply this technique. Gates obtains the following budgeted information for 2017:

Required
1. a. Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to programs, calculate the budgeted indirect cost rates for medical supplies; rent and clinic maintenance; administrative costs for patient charts, food, and laundry; and laboratory services.
b. Using an activity-based costing approach to cost analysis, calculate the budgeted cost of each program and the budgeted cost per patient-year of the drug program.
c. What benefits can Crosstown Health Center obtain by implementing the ABC system?
2. What factors, other than cost, do you think Crosstown Health Center should consider in allocating resources to its programs?

Transcribed Image Text:

Professional salaries: physicians X $150,000 S600,000 900,000 12 psychologists × S75000 16 nurses X $30,000 Medical supplies Rent and clinic maintenance Administrative costs to manage patient charts, food, laundry Laboratory services Total 480,000$1,980,000 242,000 138,600 484,000 92,400 $2,937,000 Aftercare Total E Total Employees PhvidiansDrug Physicians Psychologists Nurses 12 16 10 Aftercare Total Square feet of space occupied by each program 9,000 2,000 21,000 110 2,100 Drug Patient-years of service Number of laboratory tests 50 1,400 60 700