Hinduja Health Centre (HHC) runs three programmes: (1) alcoholic rehabilitation, (2) drug addict rehabilitation, and (3) aftercare (counseling and support of patients after release from a mental hospital). The HHC’s budget for current year follows:
Dr. Anupam Verma, the Director of the HHC, is keen on determining the cost of each programme. He has compiled the following data describing employees allocations to individual programmes:
Eight patients are in residence in the alcohol programme, each staying for about six months. Thus, the clinic provides 40 patient-years of service in the alcohol programme. Similarly, 100 patients are involved in the drug programme for about six months each. Thus, the clinic provides 50 patient-years of service in the drug programme. Dr Verma has recently become aware of activity-based costing as a method to refine costing systems. He asks his accountant, Kulkarni, how he should apply this new technique. Kulkarni obtains the following information:
(a) Consumption of medical supplies depends on the number of patient-years.
(b) General Overhead Costs consist of
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