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: 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 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 A.$182.50 for occupants in the low-usage category. B.$145.00 for occupants in the medium-usage category. C.$245.00 for occupants in the high-usage category. D.$620.00 for all occupants.
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: 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 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 A.$182.50 for occupants in the low-usage category. B.$145.00 for occupants in the medium-usage category. C.$245.00 for occupants in the high-usage category. D.$620.00 for all occupants.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:
|
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
|
|||
|
|
|
|
|||
|
|
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
-
A.$182.50 for occupants in the low-usage category.
-
B.$145.00 for occupants in the medium-usage category.
-
C.$245.00 for occupants in the high-usage category.
-
D.$620.00 for all occupants.
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