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"ALF Co. is an assisted-living facility that provides services in the form of residential space, meals, and other occupant assistance (OOA) to its occupants. ALF currently uses a traditional cost accounting system that defines the service provided as assisted living, with service output measured in terms of occupant days. Each occupant is charged a daily rate equal to ALF’s annual cost of providing residential space, meals, and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed that occupants’ use of OOA varies substantially. This analysis determined that occupants could be grouped into three categories (low, moderate, and high usage of OOA) and that the activity driver of OOA is nursing hours. The driver of the other activities is occupant days. The following quantitative information was also provided:"
Occupant Category Annual Occupant Days Annual Nursing Hours
Low usage 36,000 90000
Medium usage 18,000 90000
High usage 64,000 120000
"The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate should be"