Section A

CarePlus is a specialized private hospital shifting from traditional absorption costing to Activity-Based Costing (ABC). They have identified 'Patient Admissions' as a key activity.

Which of the following would be the most appropriate cost driver for the 'Patient Admissions' activity cost pool?

Answer options:

Total nursing hours worked.

The number of patients admitted.

The number of surgical procedures performed.

Total hospital floor space.

How to approach this question

Identify the factor that directly causes the costs in the 'Patient Admissions' department to increase or decrease.

Full Answer

B.The number of patients admitted.✓ Correct

In ABC, a cost driver is the factor that causes a change in the cost of an activity. The administrative costs of admitting patients are driven by the frequency of the activity, which is the number of patients admitted.

Common mistakes

Choosing a traditional volume-based driver like nursing hours out of habit.

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