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Activity-based costing: service organisation The Intellectually Disabled Council has responsibility for distributing government grants to fund support services for intellectually disabled people

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Activity-based costing: service organisation

The Intellectually Disabled Council has responsibility for distributing government grants to fund support services for intellectually disabled people. The director is concerned that grants be distributed on an equitable basis, and asks Sue Jolley, the council's management accountant, to estimate the cost of providing institutional care to clients with intellectual disabilities. Jolley decides to use activity-based costing in one of the state's larger institutions, Greenfields, to obtain an initial estimate of the costs of the services provided.

Working with a project team at Greenfields, she identifies the following major activities and costs for next year. 

Greenfields activities performed

Activity                                                                Cost (in $'000s)                                Annual volume of activity driver

Cook meals                                                        $500                                                     100 000 meals

Transport clients (internal)                          200                                                       4 000 hours of assistance

Transport clients (external)                        450                                                       6 000 hours of assistance

Clean rooms                                                      100                                                       20 000 rooms cleaned

Bath clients                                                        144                                                       16 000 baths given

Dress clients                                                      30                                                          10 000 clients dressed

Administer medication                                  120                                                       75 000 doses administered

Provide occupational therapy                    90                                                          600 classes

Provide physiotherapy                                  250                                                       5 000 hours of physiotherapy

Run workshop                                                  150                                                       200 days of operation

 

Although the needs of the individual clients vary tremendously, the project team identifies three major service types: high-dependency support, low-dependency support and outpatient support. High-dependency and low-dependency clients live at Greenfields, while outpatients attend the centre on a daily basis. The average number of activities required to support each of the three types of clients each day is estimated as follows

 

 

 

 

 

Greenfields activities consumed per client per day

Activity                                              High-dependency          Low-dependency                            Outpatient

Cook meals                                                        3                                            3                                                           1

Internal transport                                           4                                            0                                                            0

External transport                                           3                                            2                                                           1

Clean room                                                        2                                            1                                                            0

Bath client                                                          1                                            0                                                            0

Dress client                                                        1                                              0                                                           0

Administer medication                                  4                                           1                                                           1

Provide occupational therapy*                  1                                          2                                                           2

Provide physiotherapy                                  4                                            2                                                          1

Run workshop†                                               0                                           1                                                              1

* Occupational therapy classes are attended by an average of 10 clients.

† The workshop is used by an average of 20 clients per day

Required:

1. Construct an Excel spreadsheet to:

(a) calculate the cost per unit of activity driver for each of the activities identified by the project team

(b) calculate the daily cost of supporting: (i) a high-dependency client (ii) a low-dependency client (iii) an outpatient.

2. Review the list of activities and suggest some major activities that may have been overlooked by the project team.

3. Do you think activity-based costing is useful in this situation? Explain your answer