Question

Ridge​'s Radiology Center​ (RRC) performs​ X-rays, ultrasounds, computer tomography​ (CT) scans, and magnetic resonance imaging​ (MRI). RRC has developed a reputation as a top radiology center in the state. RRC has achieved this status because it constantly reexamines its processes and procedures. RRC has been using a​ single, facility-wide overhead allocation rate. The vice president of finance believes that RRC can make better process improvements if it uses more disaggregated cost information. She​ says, "We have​ state-of-the-art medical imaging technology.​ Can't we have​ state-of-the-art accounting​ technology?"

1.	Calculate the budgeted cost per service for​ X-rays, ultrasounds, CT​ scans, and MRI using direct technician labor costs as the allocation basis.
2.	Calculate the budgeted cost per service of​ X-rays, ultrasounds, CT​ scans, and MRI if RRC allocated overhead costs using​ activity-based costing.
3.	Explain how the disaggregation of information could be helpful to​ RRC's intention to continuously improve its services.

Ridge's Radiology Center Budgeted Information for the year Ended May 31, 2017 X-rays Ultrasound CT scan MRI Total Technician labor $ 117,450 $ 154,000 $ 169,000 $ 156,000 $ 596,450 Depreciation 106,800 201,000 300,200 692,000 1,300,000 Materials 21,800 16,300 23,700 31,000 92,800 Administration 18,620 Maintenance 260,000 Sanitation 271,425 Utilities 106,050 Total $ 246,050 $ 371,300 $ 492,900 $ 879,000 $ 2,645,345 Number of procedures 2,555 4,760 3,290 2,695 Minutes to clean after each procedure 10 10 20 40 Minutes for each procedure 5 20 15 40

RRC operates at capacity. The proposed allocation bases for overhead​ are:

Administration	Number of procedures
Maintenance​ (including parts)	Capital cost of the equipment​ (use Depreciation)
Sanitation	Total cleaning minutes
Utilities	Total procedure minutes

Answer 1

1	Budgeted overhead rate=Total indirect costs/Total techinician labor cost
	Total indirect costs:
			$
	Administration		18620
	Maintenance		260000
	Sanitation		271425
	Utilities		106050
	Total		656095
	Budgeted overhead rate=656095/596450=$1.10 per DL $
					X-rays	Ultrasound	CT scan	MRI
	Technician labor			a	1,17,450	1,54,000	1,69,000	1,56,000
	Depreciation				1,06,800	2,01,000	3,00,200	6,92,000
	Materials				21,800	16,300	23,700	31,000
	Indirect costs			a*1.10	1,29,195	1,69,400	1,85,900	1,71,600
	Total budgeted costs			b	3,75,245	5,40,700	6,78,800	10,50,600
	Number of procedures			c	2,555	4,760	3,290	2,695
	Budgeted cost per service			b/c	146.87	113.59	206.32	389.83
2			(4). Cost	(5). Total quantity of cost driver	Cost driver rate
			a				b	a/b
	Administration		18620	Number of procedures			13300	1.4	Per procedure
				(2555+4760+3290+2695)
	Maintenance		260000	Depreciation			1300000	0.20	Per $ of depreciation
	Sanitation		271425	Total cleaning minutes		(Note:1)	246750	1.10	Per cleaning minute
	Utilities		106050	Total procedure minutes		(Note:2)	265125	0.40	Per procedure minute
	Note:1
	Total cleaning minutes:
					X-rays	Ultrasound	CT scan	MRI	Total
	Number of procedures			a	2,555	4,760	3,290	2,695
	Minutes to clean after each procedure			b	10	10	20	40
	Total cleaning minutes			a*b	25550	47600	65800	107800	246750
	Note:2
	Total procedure minutes
					X-rays	Ultrasound	CT scan	MRI	Total
	Number of procedures			a	2,555	4,760	3,290	2,695
	Minutes for each procedure			b	5	20	15	40
	Total procedure minutes			a*b	12775	95200	49350	107800	265125
					X-rays	Ultrasound	CT scan	MRI
	Technician labor				1,17,450	1,54,000	1,69,000	1,56,000
	Depreciation				1,06,800	2,01,000	3,00,200	6,92,000
	Materials				21,800	16,300	23,700	31,000
	Administration				3,577	6,664	4,606	3,773
	(No.of procedures*cost driver rate)				(2555*1.4)	(4760*1.4)	(3290*1.4)	(2695*1.4)