ABSTRACT: Activity‐based management uses information from an activity‐based costing (ABC) system for both recurring and nonrecurring management decisions. In this case study, an ABC system that assigned only indirect costs to the final cost objects has already been created and students must expand this ABC system to include the assignment of direct costs to the cost objects, and then compare these total unit costs to the revenue collected for each cost object. Students then analyze this cost and revenue information to give advice to management about case mix, capacity constraints, and mergers.

In the health care industry, most medical practices have little control over customer demand for services or the amount that a practice will be reimbursed for its services. Students are asked to comment on the ethical and social implications of this fact, in the context of the results of their profitability analyses for a particular thoracic surgery practice. This case assists students in the development of a large number of competencies found in the AICPA Core Competency Framework.

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