ABC (BECKLEY HILL)

Beckley Hill (BH) is a private hospital carrying out two types of procedures on patients. Each type of procedure incurs the following direct costs: Procedure A B $ $ Surgical time and materials 1,200 2,640 Anaesthesia time and materials 800 1,620 BH currently calculates the overhead cost per procedure by taking the total overhead cost and simply dividing it by the number of procedures, then rounding the cost to the nearest 2 decimal places. Using this method, the total cost is $2,475·85 for Procedure A and $4,735·85 for Procedure B. Recently, another local hospital has implemented activity-based costing (ABC). This has led the finance director at BH to consider whether this alternative costing technique would bring any benefits to BH. He has obtained an analysis of BH’s total overheads for the last year and some additional data, all of which is shown below: Cost Cost driver $ Administrative costs Administrative time per procedure 1,870,160 Nursing costs Length of patient stay 6,215,616 Catering costs Number of meals 966,976 General facility costs Length of patient stay 8,553,600 ––––––––––– Total overhead costs 17,606,352 ––––––––––– Procedure A B No. of procedures 14,600 22,400 Administrative time per procedure (hours) 1 1·5 Length of patient stay per procedure (hours) 24 48 Average no. of meals required per patient 1 4 Required: (a) Calculate the full cost per procedure using activity-based costing. (b) Making reference to your findings in part (a), advise the finance director as to whether activity-based costing should be implemented at BH. It was asked in June 2015 diet. I would really appreciate it if i can get a solution. Thanks