case on job order costing dental practice 420993

Dr. Alyx Hemmings is employed by Mesa Dental. Mesa Dental recently installed a computerized job order costing system to help monitor the cost of its services. Each patient is assigned a

job number when he or she checks in with the receptionist. The receptionist bookkeeper notes

the time the patient enters the treatment area and when the patient leaves the area. This difference between the entry and exit times is the number of patient hours used and the direct labor

time assigned to the dental assistant. (A dental assistant is constantly with the patient.) The

direct labor time assigned to the dentist is 50 percent of the patient hours. (The dentist typically

splits her time between two patients.)

The chartfilled out by the dental assistant provides additional data that is entered into the

computer. For example, the chart contains service codes that identify the nature of the treatment, such as whether the patient received a crown, afilling, or a root canal. The chart not only

identifies the type of service but its level as well. For example, if a patient receives afilling, the

dental assistant indicates (by a service level code) whether thefilling was one, two, three, or four

surfaces. The service and service level codes are used to determine the rate to be charged to the

patient. The costs of providing different services and their levels also vary.

Costs assignable to a patient consist of materials, labor, and overhead. The types of materials

used”and the quantity”are identified by the assistant and entered into the computer by the

bookkeeper. Material prices are kept onfile and accessed to provide the necessary cost information. Overhead is applied on the basis of patient hours. The rate used by Mesa Dental is $32 per

patient hour. Direct labor cost is also computed using patient hours and the wage rates of the

direct laborers. Dr. Hemmings is paid an average of $60 per hour for her services. Dental assistants are paid an average of $20 per hour. Given the treatment time, the software program calculates and assigns the labor cost for the dentist and her assistant; overhead cost is also assigned

using the treatment time and the overhead rate.

The overhead rate does not include a charge for any X rays. The X Ray Department is separate from dental services; X rays are billed and costed separately. The cost of an X ray is $12

perfilm; the patient is charged $15 perfilm. If cleaning services are required, cleaning labor costs

$35 per patient hour.

Glen Johnson, a patient (Job 267), spent 30 minutes in the treatment area and had a twosurfacefilling. He received two Novocaine shots and used three ampules of amalgam. The cost

of the shots was $14 ($7 each). The cost of the amalgam was $6 per ampule. Other direct materials used are insignificant in amount and are included in the overhead rate. The rate charged to

the patient for a two surfacefilling is $110. One X ray was taken.

Required:

1. Prepare a job order cost sheet for Glen Johnson. What is the cost for providing a twosurfacefilling? What is the gross profit earned? Is the X ray a direct cost of the service? Why

are the X rays costed separately from the overhead cost assignment?

2. Suppose that the patient time and associated patient charges are given for the followingfillings:

1 Surface 2 Surface 3 Surface 4 Surface

Time 20 minutes 30 minutes 40 minutes 50 minutes

Charge $90 $110 $150 $175

Compute the cost for eachfilling and the gross profit for each type offilling. Assume that

the cost of Novocaine is $14 for allfillings. Ampules of amalgam start at two and increase

by one for each additional surface. Assume also that only one X rayfilm is needed for all

four cases. Does the increase in billing rate appear to be fair to the patient? Is it fair to the

dental corporation?