"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"