Question

ABC-A Service Application
Grand Haven is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care. The assisted living division provides residential space, meals, and medical services (MS) to its residents. The current costing system adds the cost of all of these services (space, meals, and MS) and divides by total resident days to get a cost per resident day for each month. Recognizing that MS tends to vary significantly among the residents, Grand Haven's accountant recommended that an ABC system be designed to calculate more accurately the cost of MS provided to residents. She decided that residents should be classified into four categories (A, B, C, D) based on the level of services received, with group A representing the lowest level of service and D representing the highest level of service. Two cost drivers being considered for measuring MS costs are number of assistance calls and number of assistant contacts. A contact is registered each time an assistance professional provides medical services or aid to a resident. The accountant has gathered the following data for the most recent annual period:

Resident Classification	Annual Resident Days	Annual Assistance Hours	Number of Assistance Contacts
A	8,760	15,000	60,000
B	6,570	20,000	52,000
C	4,380	22,500	52,000
D	2,190	32,500	52,000
	21,900	90,000	216,000

Other data:
Total cost of medical services for the period	$2,500,000
Total cost of meals and residential space	$1,642,500

a. Determine the ABC cost of a resident day for each category of residents using assistance hours as the cost driver.

Medical services cost per assistance hour ($27.78)

Round answers to two decimal places, if needed.

	Per Day Costs
	Medical Services	Meals and Residential	Total
Class A	$Answer	$Answer	$Answer
Class B	Answer	Answer	Answer
Class C	Answer	Answer	Answer
Class D	Answer	Answer	Answer

b. Determine the ABC cost of a resident day for each category of residents using assistance contacts as the cost driver.

Round rate to two decimal places.
Medical services cost per assistance contacts $Answer

Round answers to two decimal places, if needed.

	Per Day Costs
	Medical Services	Meals and Residential	Total
Class A	$Answer	$Answer	$Answer
Class B	Answer	Answer	Answer
Class C	Answer	Answer	Answer
Class D	Answer	Answer	Answer

***I got the medical services cost per assistance hour ($27.78) but from there none of the numbers I'm getting are correct. Help?

Answer 1

a) Medical services cost per assistance hour = Total medical services cost/Total assistance hours

= $2,500,000/90,000 = $27.77777 per hour (use 5 decimal places to avoid rounding off difference)

Meals and residential cost per assistance hour = Total meals and residential cost/Total assistance hrs

= $1,642,500/90,000 = $18.25 per hour   

Calculation of Per Day Costs (Amounts in $)

Particulars	Class A	Class B	Class C	Class D
Allocated medical services cost ($27.77777*Assistance hrs) (1)	($27.77777*15,000) = 416,667	($27.77777*20,000) = 555,555	($27.77777*22,500) = 625,000	($27.77777*32,500) = 902,778
Annual Resident Days (2)	8,760	6,570	4,380	2,190
Medical services per day costs (3 = 1/2)	47.56	84.56	142.69	412.23
Allocated Meals and residential cost ($18.25*Assistance hour) (4)	($18.25*15,000) = 273,750	($18.25*20,000) = 365,000	($18.25*22,500) = 410,625	($18.25*32,500) = 593,125
Meals and residential per day costs (5 = 4/2)	31.25	55.56	93.75	270.83
Total per day costs (3+5)	78.81	140.12	236.44	683.06

b) Medical services cost per assistance contact = Total medical services cost/Total assistance contacts

= $2,500,000/216,000 = $11.57407 per contact

Meals and residential cost per assistance contact = Meals and residential cost/Total assistance contact

= $1,642,500/216,000 = $7.60417 per contact   

Calculation of Per Day Costs (Amounts in $)

Particulars	Class A	Class B	Class C	Class D
Allocated medical services cost ($11.57407*Assistance contact) (1)	($11.57407*60,000) = 694,444	($11.57407*52,000) = 601,852	($11.57407*52,000) = 601,852	($11.57407*52,000) = 601,852
Annual Resident Days (2)	8,760	6,570	4,380	2,190
Medical services per day costs (3 = 1/2)	79.27	91.61	137.41	274.82
Allocated Meals and residential cost ($7.60417*Assistance contact) (4)	($7.60417*60,000) = 456,250	($7.60417*52,000) = 395,417	($7.60417*52,000) = 395,417	($7.60417*52,000)= 395,416
Meals and residential per day costs (5 = 4/2)	52.08	60.19	90.28	180.56
Total per day costs (3+5)	131.35	151.80	227.69	455.38