Problem:
Department and activity-cost rates, service sector. Roxbury's Radiology Center (RRC) performs X-rays, ultrasounds, CT scans, and MRIs. 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 VP 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?"
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Roxbury's Radiology Center
Budgeted Information
For the Year Ended May 30, 2011
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X-rays
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Ultrasound
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CT scan
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MRI
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Total
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Technician labor
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$ 64,000
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$104,000
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$119,000
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$106,000
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$ 393,000
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Depreciation
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136,800
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231,000
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400,200
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792,000
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1560,000
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Materials
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22,400
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16,500
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23,900
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30,800
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93,600
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Administration
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19,000
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Maintenance
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260,000
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Sanitation
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267,900
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Utilities
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121,200
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$223,200
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$351,500
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$543,100
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$928,800
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$2,714,700
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Number of procedures
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2,555
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4,760
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3,290
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2,695
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Minutes to clean after each procedure
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10
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10
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20
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40
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Minutes for each procedure
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5
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20
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15
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40
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RRC operates at capacity. The proposed allocation bases for overhead are as follows:
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Administration
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Number of procedures
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Maintenance (including parts)
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Capital cost of the equipment (use Depreciation)
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Sanitation
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Total cleaning minutes
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Utilities
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Total procedure minutes
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1. Calculate the budgeted cost per service for X-rays, Ultrasounds, CT scans, and MRIs using direct technician labor costs as the allocation basis.
2. Calculate the budgeted cost per service of X-rays, Ultrasounds, CT scans, and MRIs if RRC allocated overhead costs using activity-based costing.
3. Explain how the disaggregation of information could be helpful to RRC's intention to continuously improve its services.