Question

Problem C-6A Activity-based costing LO P2 Patient Health is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 50%. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, including an estimate of the average cost of both general surgery and orthopedic surgery. The clinic’s three cost centers and their cost drivers follow. Cost Center Cost Cost Driver Driver Quantity Professional salaries $ 1,850,000 Professional hours 10,000 Patient services and supplies 37,000 Number of patients 500 Building cost 480,000 Square feet 4,000 The two main surgical units and their related data follow. Service Hours Square Feet* Patients General surgery 4,000 830 400 Orthopedic surgery 6,000 3,170 100 *Orthopedic surgery requires more space for patients, supplies, and equipment. Required: Complete the below table. 1. compute the cost per cost driver for each of the three centers. 2. use the results from part 1 to allocate costs from each of the three cost centers to both the general surgery and the orthopedic surgery units. Computer total cost and average post per patient for both the general surgery and the orthopedic surgery units.

Answer 1

--Requirement 1 and 2

						General Surgery		Orthopedic Surgery
Activity	Overhead Cost	Activity Drivers		Activity rates		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Professional Salaries	$1,850,000	10,000	professional hours	$185	per professional hours	4,000	$740,000	6,000	$1,110,000
Patient Services & Supplies	$37,000	500	no. of patients	$74	per no of patients	400	$29,600	100	$7,400
Building Cost	$480,000	4,000	Square feet	$120	per sq feet	830	$99,600	3,170	$380,400
					Total Overhead Cost assigned		$869,200		$1,497,800
					No. of patient		400		100
					Average Cost per patient		$                                  2,173.00		$      14,978.00