Many of you ultimately will work in service environments, such as medical facilities. Many service organizations have adopted activity-based management systems, which incorporate activity-based costing concepts throughout the organization.
East Valley Hospital is a primary medical health-care facility and trauma center that serves 11 small, rural Midwestern communities within a 40-mile radius. The hospital offers all the medical/ surgical services of a typical small hospital. It has a staff of 18 full-time doctors and 20 part-time visiting specialists. East Valley has a payroll of 150 employees, consisting of nurses, technicians, therapists, dieticians, managers, directors, administrators, secretaries, data processors, and janitors.
(a) Using your existing knowledge (however limited, moderate, or in-depth) of a hospitalâs operations, identify as many activities as you can that would serve as the basis for implementing an activity-based costing system.
(b) For each of the activities listed in (a), identify a cost driver that would serve as a valid measure of the resources consumed in the activity.