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Sehat Selalu Hospital (SSH) as a hospital that serving the community must provide services that serving the
needs of the public in terms of quality and price. The SSH offers a wide range of services, namely: Inpatient
Services, Emergency Room, Specialist Polyclinic, Medical Check Up, Central Surgery, Maternity Rooms,
etc.

SSH providing inpatient services for patients who require intensive care to make it easier to observe the
patient's health development on an ongoing basis. Inpatient services at the SSH are one of the largest sources
of income from other health services offered by the hospital, but in determining the price of inpatient services
at the SSH still use traditional methods, whereas in determining the price it is essentials for the hospital to
know the amount each cost used. This can cause the imposition of specified inpatient services charges to be
cheaper (undercosting) or more expensive (overcosting) of the costs that should be consumed in the inpatient
services.

The tariff that is too high will harm the hospital service users, especially the weak economic community
because of the inability to pay the amount of the hospital bill, eventually it also harms the hospital by
increasing the number of receivables. A tariff that is too low will harm the hospital because of the hospital's
inability to cover the costs incurred in producing a unit or service package. The tariff for inpatient unit at
SSH are explained in Table 1.

Class room type Tariff per day (IDR) Days of hospitalization per year (day) Sales (in IDR 000)

VIP 1,600,000 977 1,563,200

Class I 800,000 3,553 2,842,400

Class II 500,000 5,857 2,928,500

Class III 300,000 9,789 2,936,700

Calculation of the cost of inpatient service is very important because it relates to the problem of determining
the unit cost of inpatient service, which will ultimately affect the determination of the selling price or
inpatient price, thereby producing a surplus or deficit in percent of the same magnitude for each bed of each
class so that management of the hospital does not know the actual profit or loss, whereas to know the actual
profit or loss, SSH need to determine the inpatient price accurately. Thus, they should calculate unit cost
accurately.

In order to help management of SSH to provide accurate unit cost which eventually affect the pricing, the
calculation of unit cost using other methods is used so it can be a consideration for making decisions in the
future. Other method used to calculate unit cost is the Activity Based Costing (ABC) method. Management
also wants to know the minimum tariff per day using ABC method because ABC claimed if this method in
practice is more profitable than traditional cost systems, representing a more rigorous application by tracking
other costs that can actually be tracked, not only for expenditure units but for activities desired to produce
output. The hospital has many activities which are the basis for using the calculation of cost services using
Activity Based Costing method (Table 2 and 3). The business department involved consists of the service
department, general department and administrative department, there is no production department. SSH
determines 4 activity cost pools, namely customer orders, product services, order size and organization
facilities (Table 4). The characteristic of class room type as cost object at SSH shown in Table 5. Distribution
of annual variabel cost to cost object shown in Table 6. You as a management consultant are asked to
determine the cost, product margin and tariff for each class using the ABC method.

Amount of Annual Overhead Costs at SSH (in 000)

Activity Amount of Cost (IDR)

Building utilities 192,000

Room cleaning service 97,700

Patient care 2,640,000

Laundry 8,300

Building maintenance 37,200

Patient facility service 1,213,800

Employe wages and salaries 3,500,200

Amount of Annual Variable Costs at SSH (in 000)

Activity Amount of Cost (IDR)

Disposable medical supplies 1,147,300

Daily food service 665,900

Activity Cost Pools and Activity Measure at SSH

Activity Cost Pool Activity Measure

Customer orders Number of the inpatient rooms

Product services Length of days of inpatient

Order Size Number of inpatients

Organization facilities Length of days of assets used

The Characteristic of Class Room Type at SSH

Supporting Data VIP Class I Class II Class III Total

Number of inpatient rooms 5 4 5 3 17

Number of inpatients (person) 376 1,416 2,160 2,500 6,452

Length of days of inpatient care (days) 677 2,553 3,857 3,821 10,908

Length of days of assets used (days) 350 250 280 350 1,230

Distribution of Annual Variabel Cost to Cost Object

Activity VIP Class I Class II Class III Total

Disposable medical supplies 515,000 345,000 232,500 54,800 1,147,300

Daily food service 310,000 185,400 110,000 60,500 665,900

Instruction

1. Assign overhead costs to activity cost pools by business department. Distribution of resource consumption
across activity cost pools determined by yourself based on logical considerations.

2. Calculate activity rates.

3. Assign overhead costs to cost objects using the activity rates and activity measures.

4. Prepare management reports.

5. What is the minimum tariff that must be set for each type of classroom based on the abc method ?

6. Which types of classrooms are the most profitable and less profitable ? Why did this happen ? Explain.

7. What is your recommendation related to less profitable segments to be more profitable?

Answer

1.

Base on
logical
consideration,
Activity Amount it should be
Cost Activity Cost Pool
of Cost (IDR) distributed by
the following
activity
measure:

Number of
Building utilities 192000000 inpatient Customer orders
rooms

Number of
Room cleaning
97700000 inpatient Customer orders
service
rooms

Length of
days of
Patient care 2640000000 Product services
inpatient care
(days)

Number of
Laundry 8300000 inpatients Order Size
(person)

Number of
Building
37200000 inpatients Order Size
maintenance
(person)

Length of
Patient facility Organization
1213800000 days of assets
service facilities
used (days)

Number of
Employee wages
3500200000 inpatients Order Size
and salaries
(person)

2.

Activity Amount Total cost Base on Activity Cost Pool Total No. of Rate per Activity
 logical
consideration,
it should be
of Cost (IDR) distributed by Activity
the following
activity
measure:

Number of
Building utilities 192000000 inpatient Customer orders 17
11,294,117.65
rooms

Number of
Room cleaning
97700000 inpatient Customer orders 17
service 5,747,058.82
rooms

Length of
days of
Patient care 2640000000 Product services 10908
inpatient care 242,024.20
(days)

Number of
Laundry 8300000 inpatients Order Size 6452
1,286.42
(person)

Number of
Building
37200000 inpatients Order Size 6452
maintenance 5,765.65
(person)

Length of
Patient facility Organization
1213800000 days of assets 1230
service facilities 986,829.27
used (days)

Number of
Employee wages
3500200000 inpatients Order Size 6452
and salaries 542,498.45
(person)

3.

Activity Amount Rate per

Activity Cost Pool VIP Class I Class II C
of Cost (IDR) Activity

Building utilities Customer orders

11,294,117.65 56,470,588.24 45,176,470.59 56,470,588.24 3
Room cleaning
Customer orders
service 5,747,058.82 28,735,294.12 22,988,235.29 28,735,294.12 1

Patient care Product services

242,024.20 163,850,385.04 617,887,788.78 933,487,348.73 92

Laundry Order Size

1,286.42 483,694.98 1,821,574.71 2,778,673.28 3,

Building
Order Size
maintenance 5,765.65 2,167,885.93 8,164,166.15 12,453,812.77 14

Patient facility Organization

service facilities 986,829.27 345,390,243.90 246,707,317.07 276,312,195.12 34

Employee wages
Order Size 1,
and salaries 542,498.45 203,979,417.23 768,177,805.33 1,171,796,652.20
23

Supporting Data VIP Class I Class II Class III Total

Number of
5 4 5 3 17
inpatient rooms

Number of
inpatients 376 1416 2160 2500 6452
(person)

Length of days
of inpatient care 677 2553 3857 3821 10908
(days)

Length of days
of assets used 350 250 280 350 1230
(days)
4.

Activity Amount Rate per

Activity Cost Pool VIP Class I Class II C
of Cost (IDR) Activity

Building utilities Customer orders

11,294,117.65 56,470,588.24 45,176,470.59 56,470,588.24 33

Room cleaning
Customer orders
service 5,747,058.82 28,735,294.12 22,988,235.29 28,735,294.12 17

Patient care Product services

242,024.20 163,850,385.04 617,887,788.78 933,487,348.73 92

Laundry Order Size

1,286.42 483,694.98 1,821,574.71 2,778,673.28 3,

Building
Order Size
maintenance 5,765.65 2,167,885.93 8,164,166.15 12,453,812.77 14

Patient facility Organization

service facilities 986,829.27 345,390,243.90 246,707,317.07 276,312,195.12 34

Employee wages
Order Size 1,
and salaries 542,498.45 203,979,417.23 768,177,805.33 1,171,796,652.20
23

TOTAL 2,
801,077,509.43 1,710,923,357.92 2,482,034,564.46
18

10% 22% 32% 35

Management
report:

Base on the cost distribution computed from the Activity Based Costing method, the cost object which has the highe
its activities is Class III with 35% cost absorption while the lowest is VIP which has 10%. Class I and Class II have

5.

Variable Cost

Days of
Disposable medical Daily food M
Classroom type Overhead Total Cost hospitalization per
supplies service ta
year (day)

VIP 310,000,000.0
515,000,000.00 801,077,509.43 1,626,077,509.43 977.00 1,
0

Class I 185,400,000.0
345,000,000.00 1,710,923,357.92 2,241,323,357.92 3,553.00 63
0

Class II 110,000,000.0
232,500,000.00 2,482,034,564.46 2,824,534,564.46 5,857.00 48
0

Class III
54,800,000.00 60,500,000.00 2,695,164,568.18 2,810,464,568.18 9,789.00 28

Total 665,900,000.0
1,147,300,000.00 7,689,200,000.00 9,502,400,000.00
0

6.

Variable Cost

Disposable
Daily food
Classroom type Sales medical Overhead Total Cost N
service
supplies

VIP 515,000,000.0
1,563,200,000.00 310,000,000.00 801,077,509.43 1,626,077,509.43 (6
0

Class I
345,000,000.0
 2,842,400,000.00 0 185,400,000.00 1,710,923,357.92 2,241,323,357.92 60

Class II 232,500,000.0
2,928,500,000.00 110,000,000.00 2,482,034,564.46 2,824,534,564.46 10
0

Class III
2,936,700,000.00 54,800,000.00 60,500,000.00 2,695,164,568.18 2,810,464,568.18 12

Net Profit 1,147,300,000

10,270,800,000.00 665,900,000.00 7,689,200,000.00 9,502,400,000.00 76
.00

Most
Reason:
Profitable:

78% of the total net

Class I profit and 21.15%
net profit per sales

Less Profitable: Reason:

-8.18% of the total

net profit and
VIP
-4.02% net profit
per sales

7.

The management should consider increasing its price because its cost per day base on activity-based costing is
higher than its price.

Explanation:

Formula:

Rate per activity = Total cost divided by total no. of activity

Cost per activity = rate per activity x no. of activity per class
Minimum tariff = (variable cost + overhead cost)/ days of hospitalization per year

Net Profit = sales - variable cost - overhead cost

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