Question

The audiology department at Randall Clinic offers many services to the clinic's patients. The three most common, along with cost and utilization data, are as follows: Service Variable Cost per Service Annual Direct Fixed Costs Annual Number of Visits Basic examination $5.2 $45158 3192 Advanced examination 7.9 30071 1585 Therapy session 9.6 44792 546 Assume that the audiology department is allocated $100000 in total overhead by the clinic, and the department director has allocated $47017 of this amount to the three services listed above. What is the fee schedule for the basic examination service, assuming that the goal is to cover variable and direct fixed costs as well as overhead costs? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of number of visits.)

Answer 1

Randall Clinic

Determination of fee schedule for the basic examination service:

The fee schedule for the basic examination service = $28.18 per visit

Estimated fee for 3,192 visits = 3,192 x $28.18 = $89,951

Allocation of audiology department service cost to three services:

Total allocated cost = $47,017

Allocation base – number of patient visits

Total number of patent visits for all three services = 3,192 + 1,585 + 546 = 5,323

Overhead allocation rate = $47,017/5,323 = $8.833

	Service Variable Cost per Service	Annual Direct Fixed Costs	Annual number of visits	fixed direct cost per visit
Basic examination	$5.20	$45,158	3,192	$14.15
Advanced examination	$7.90	$30,071	1,585	$18.97
Therapy Session	$9.60	$44,792	546	$82.04

	Variable cost	Direct fixed cost per visit	overhead cost per visit	Total cost per visit
Basic examination	$5.20	$14.15	$8.83	$28.18
Advanced examination	$7.90	$18.97	$8.83	$35.70
Therapy Session	$9.60	$82.04	$8.33	$99.97