In: Accounting
A health clinic that offers both acupuncture and massage therapy treatments :
Treatment Type |
Length of Time |
Price |
Private Session - Acupuncture |
90 minutes |
$160 |
Private Session - Massage |
90 minutes |
$160 |
Direct labour costs are based on the following rates:
Acupuncturist cost |
$70 per hour |
Massage Therapist cost |
$50 per hour |
A client, Ashley Ardern, had both Acupuncture and Massage treatments on his back in May 2020: 10 sessions with the Acupuncturist and 6 sessions with the Massage Therapist. Massage oil supplies used in Ashley’s massage sessions were $12 per session.
In addition to allocating direct costs to each treatment client, the clinic’s existing costing system uses a budgeted overhead allocation rate for allocating overheads based on the total number of sessions estimated for the month.
In May 2020, the treatment rooms had a budgeted allocation base of 300 sessions, and total budgeted overheads for the month were $13,000. Within the overhead costs, there is a depreciation charge that is related specifically to the Acupuncture treatment equipment.
The accountant has suggested to the manager of the clinic that they implement a new costing system so the allocation of overheads can better reflect the usage of the treatment resources. Specifically, the accountant pointed out that the acupuncture sessions include the use of acupuncture equipment not used in the massage therapy sessions and therefore the acupuncture equipment overheads should not be charged when the massage therapy session is carried out.
Required:
Calculate the following new budgeted overhead allocation rates based on the new costing system for May 2020: