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 the 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 privided to residents. She decided that residents should be classified into four categories into four categories (A, B, C, D) based on the level of service. Two cost drivers being considered for measuring MS costs and 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 $5,000,000 Total cost of meals and residential space $3,280,000 Required (Round answers and Intermediate Calculations to the Nearest Dollar) a. Determine the ABC cost of a resident day for each category or residents using assistance hours as the cost driver. b. Determine the ABC cost of a resident day for each category of residents using assistance contacts as the cost driver. c. Which cost driver do you think provides the more accurate measure of the cost per day for a Grand Haven resident?

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 the 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 privided to residents. She decided that residents should be classified into four categories into four categories (A, B, C, D) based on the level of service. Two cost drivers being considered for measuring MS costs and 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 $5,000,000 Total cost of meals and residential space $3,280,000 Required (Round answers and Intermediate Calculations to the Nearest Dollar) a. Determine the ABC cost of a resident day for each category or residents using assistance hours as the cost driver. b. Determine the ABC cost of a resident day for each category of residents using assistance contacts as the cost driver. c. Which cost driver do you think provides the more accurate measure of the cost per day for a Grand Haven resident?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

Problem 3MTC

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P5-3A	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 the 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 privided to residents. She decided that residents should be classified into four categories into four categories (A, B, C, D) based on the level of service. Two cost drivers being considered for measuring MS costs and 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	$5,000,000
	Total cost of meals and residential space	$3,280,000


	Required (Round answers and Intermediate Calculations to the Nearest Dollar)
	a. Determine the ABC cost of a resident day for each category or residents using assistance hours as the cost driver.

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

	c. Which cost driver do you think provides the more accurate measure of the cost per day for a Grand Haven resident?

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