Chapter 5, Problem 5.36P

Department and activity-cost rates, service sector. Raynham’s Radiology Center (RRC) performs X-rays. ultrasounds, computer tomography (CT) scans, and magnetic resonance imaging (MRI). RRC has developed a reputation as a top radiology center in the state. RRC has achieved this status because it constantly reexamines its processes and procedures. RRC has been using a single, facility-wide overhead allocation rate. The vice president of finance believes that RRC can make better process improvements if it uses more disaggregated cost information. She says, “We have state-of-the-art medical imaging technology. Can’t we have state-of-the-art accounting technology?”

RRC operates at capacity. The proposed allocation bases for overhead are:

Administration	Number of procedures
Maintenance (including parts)	Capital cost of the equipment (use Depreciation)
Sanitation	Total cleaning minutes
Utilities	Total procedure minutes

1. 1. Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans, and MRI using direct technician labor costs as the allocation basis.

Required

1. 2. Calculate the budgeted cost per service of X-rays, ultrasounds, CT scans, and MRI if RRC allocated overhead costs using activity-based costing.
2. 3. Explain how the disaggregation of information could be helpful to RRC’s intention to continuously improve its services.