Dr. Sherry Bird is employed by the Dental Associates. Dental Associates recently installed the computerized job-order costing system to help monitor the cost of its services. All patients are treated as a job and assigned a job number when he or she checks in with the receptionist. Receptionist-bookkeeper notes the time the patient enters the treatment area and when patient leaves the area. This difference between the entry and exit times is the number of patient hours used and the direct labor time assigned to the dental assistant. (A dental assistant is constantly with the patient.) Direct labour time assigned to the dentist is 50 percent of the patient hours. (The dentist typically splits her time between two patients.)
Chart filled out by dental assistant provides extra data that is entered into the computer. For example, the chart contains service codes which identify the nature of the treatment, like whether the patient received a crown, a filling, or a root canal. Chart not only identifies type of service but its level as well. Like, if a patient receives a filling, the dental assistant indicates (by a service-level code) whether the filling was one, two, three, or four surfaces. The service and service-level codes are used to determine the rate to be charged to the patient. The costs of providing different services and their levels also vary.
Costs assignable to the patient consist of materials, labour, and overhead. Types of materials used—and the quantity—are identified by the assistant and entered into the computer by the bookkeeper. Material prices are kept on the file and accessed to give the necessary cost information. Overhead is on the basis of patient hours. Rate used by Dental Associates is $20 per patient hour. Direct labour cost is also calculated using patient hours and the wage rates of the direct labourers. Dr. Bird is paid the average of $36 per hour for her services. Dental assistants are paid an average of $6 per hour. Given the treatment time, software program calculates and assigns the labour cost for the dentist and her assistant; overhead cost is also assigned using the treatment time and the overhead rate.
Overhead rate does not include a charge for any X-rays. X-Ray Department is separate from dental services; X-rays are billed and costed separately. The cost of an X-ray is $3.50 per film; the patient is charged $5 per film. If cleaning services are required, cleaning labour costs $9 per patient hour.
Glen Johnson, a patient (Job 267), spent 30 minutes in the treatment area and had a two-surface filling. He received two Novocaine shots and used three ampules of amalgam. The cost of the shots was $1. The cost of the amalgam was $3. Other direct materials used are insignificant in amount and are included in the overhead rate. The rate charged to the patient for a two-surface filling is $45. One X-ray was taken.
Required:
Question1) Prepare a job-order cost sheet for Glen Johnson. What is the cost for providing a two-surface filling? What is the gross profit earned? Is the X-ray a direct cost of the service? Why are the X-rays costed separately from the overhead cost assignment?
Question2) Assume that the patient time and associated patient charges are given for the following fillings:
1-Surface 2-Surface 3-Surface 4-Surf…
Time 20 min 30 min 40 min 50 min
Charge $35 $45 $55 $65
Calculate the cost for each filling and the gross profit for each type of filling. Assume that the cost of Novocaine is $1 for all fillings. Ampules of amalgam start at two and increase by one for each additional surface. Assume also that only one X-ray film is needed for all four cases. Does the increase in billing rate appear to be fair to patient? Is it fair to the dental corporation?