Acct434 Advanced Cost Management: Week 1 P5-32 Raynham’s Radiology Center (RRC) performs X-rays

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Acct434 Advanced Cost Management
Week 1

5-32. 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?”
Radhika's Radiology Center
Budgeted Information
For the year ended May 30, 2014
X-rays Ultrasound CT scan MRI Total
Technician labor 62,000 101,000 155,000 103,000 421,000
Depreciation 42,240 256,000 424,960 876,800 1,600,000
Materials 22,600 16,400 23,600 31,500 94,100
Administration 20,000
Maintenance 250,000
Sanitation 252,500
Utilities 151,100
$126,840 $373,400 $603,560 $1,011,300 $2,788,700
Number of procedures 3,842 4,352 2,924 2,482
Minutes to clean after each procedure 5 5 15 35
Minutes for each procedure 5 15 25 40

RRC operates at capacity. The proposed allocation bases for overhead are as follows:
Administration Number of procedures
Maintenance (including parts) Capital Cost of the Equipment (use Depreciation)
Sanitation Total cleaning minutes
Utilities Total procedure minutes

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