Pathos Radiology Center (PRC) performs X-rays, ultrasounds, computer tomography (CT) scans, and magnetic resonance imaging (MRI). PRC has developed a reputation as a top radiology center in the state. It has achieved this status because it constantly re-examines its processes and procedures. It has been using a single, facility wide overhead allocation rate. The Vice President of Finance believes that PRC 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?”
Table: Pathos Radiology Center Budgeted Information for the Year Ended May 31, 2022
- Calculate the budgeted cost per service for X-rays, ultrasounds, CT scans, and MRI using direct technician labor costs as the allocation basis.
- Calculate the budgeted cost per service of X-rays, ultrasounds, CT scans, and MRI if PRC allocated overhead costs using activity-based costing.
- Evaluate the differences between the 2 costing models, and assess the value of activity-based costing for management profitability analysis and decision making.
- Explain how the disaggregation of information could be helpful to PRC’s intention to continuously improve its services.