Question

An assisted-living facility provides services in the form of residential space, meals, and other occupant assistance (OOA) to its occupants. The facility currently uses a traditional cost accounting system that charges each occupant a daily rate equal to the facility’s annual cost of providing residential space, meals, and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed that occupants’ use of OOA varies substantially. This analysis determined that occupants could be grouped into three categories (low, moderate, and high usage of OOA) and that the activity driver of OOA should be nursing hours. The driver of the residential space and meals is occupant days. The following quantitative information was also provided: Annual Annual Occupant Category Occupant Days Nursing Hours Low usage 36,000 90,000 Medium usage 18,000 90,000 High usage 6,000 120,000 60,000 300,000 The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate for providing residential space, meals, and OOA should be:__________

Answer 1

total cost for:

• low usage category = $6,570,000
• medium usage category = $4,410,000
• high usage category = $3,720,000

Step-by-step explanation:

occupant category annual occupant days annual nursing hours

Low usage 36,000 90,000

Medium usage 18,000 90,000

High usage 6,000 120,000

Total 60,000 300,000

using ABC costing, the rate per occupant day = $7,200,000 / 60,000 = $120 per day

using ABC costing, the rate per nursing hour = $7,500,000 / 300,000 = $25 per nursing hour

total cost for:

low usage category = (36,000 x $120) + (90,000 x $25) = $6,570,000

medium usage category = (18,000 x $120) + (90,000 x $25) = $4,410,000

high usage category = (6,000 x $120) + (120,000 x $25) = $3,720,000