Prince Corporation acquires Squire Service Corporation for 1 million shares of Prince stock, valued at $30 per share. Squire is merged into Prince, although it continues to do business under the Squire Service name. Professional fees connected with the acquisition are $900,000 and costs of registering and issuing the new shares are $400,000, both paid in cash. Squire performs vehicle maintenance services for owners of auto, truck and bus fleets. Squire's balance sheet at acquisition is as follows:

Cash	$200,000	Current liabilities	$2,900,000
Accounts receivable	2,500,000	Long-term liabilities	8,600,000
Parts inventory	5,200,000	Stockholders' equity	13,200,000
Equipment	16,800,000
Total assets	$24,700,000	Total liabilities and equity	$24,700,000

In reviewing Squire's assets and liabilities, you determine the following:

On a discounted present value basis, the accounts receivable have a fair value of $2,300,000, and the long-term liabilities have a fair value of $8,000,000.

The current replacement cost of the parts inventory is $6,000,000.

The current replacement cost of the equipment is $18,500,000.

Squire occupies its service facilities under an operating lease with ten years remaining. The rent is below current market levels, giving the lease an estimated fair value of $1,250,000.

Squire has long-term service contracts with several large fleet owners. These contracts have been profitable; the present value of expected profits over the remaining term of the contracts is estimated at $1,000,000.

Squire has a skilled and experienced work force. You estimate that the cost to hire and train replacements would be $750,000.

Squire's trade name is well-known among fleet owners and is estimated to have a fair value of $200,000.

(a) Calculate the amount of goodwill that Prince records for the acquisition.
$Answer

(b) Prepare Prince's journal entry or entries to record the merger with Squire.

General Journal
Description	Debit	Credit
Cash	Answer	Answer
Accounts receivable	Answer	Answer
Parts inventory	Answer	Answer
Equipment	Answer	Answer
Intangible: Lease	Answer	Answer
Intangible: Service contracts	Answer	Answer
Intangible: Trade name	Answer	Answer
Goodwill	Answer	Answer
AnswerMerger expensesCashContingent consideration liabilityGain on purchase	Answer	Answer
AnswerMerger expensesCashContingent consideration liabilityGain on purchase	Answer	Answer
Current liabilities	Answer	Answer
Long-term liabilities	Answer	Answer
Capital stock	Answer	Answer

Steve and Stephanie Pratt purchased a home in Spokane, Washington, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until November 1 of year 1, when they sold the home for $500,000. The Pratts’ marginal ordinary tax rate is 35 percent. (Leave no answer blank. Enter zero if applicable.)

b. Assume the Pratts sell the home because Stephanie’s employer transfers her to an office in Utah. How much gain will the Pratts recognize on their home sale?

c. Assume the same facts as in part (b), except that the Pratts sell their home for $700,000. How much gain will the Pratts recognize on the home sale? (Do not round intermediate calculations.)

d. Assume the same facts as part (b), except that on December 1 of year 0 the Pratts sold their home in Seattle and excluded the $300,000 gain from income on their year 0 tax return. How much gain will the Pratts recognize on the sale of their Spokane home?

Refer to Eli Lilly’s 2012 annual report to answer the following questions. The 2012 annual report of Eli Lilly & Company can be found here: http://www.sec.gov/Archives/edgar/data/59478/000005947813000007/lly-20121231x10k.htm

How much of the 2012 accounts receivable balance does the company expect to collect?

What is the percentage of “other receivables” to total current assets at the end of 2012? Round to the nearest whole percentage.

What is included in the “other receivables” balance?

Control 7:

If a company’s control risk is initially assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls. For the following control activity listed, do the following two tasks:

a. Describe the test of control that the auditor would use to determine the operating effectiveness of the control.

b. Briefly describe how substantive tests of account balances should be modified if the auditor finds that the control is not working as planned. In doing so, indicate (a) what misstatement could occur because of the control deficiency, and (b) how the auditor’s substantive tests should be expanded to test for the potential misstatement.

Control Activity:

7. The only individuals who have access to the payroll master file are the payroll department head and the payroll clerk responsible for maintaining the payroll file. Access to the file is controlled by computer passwords.

Task A)

Task B)

Problem 10-5A Computing and revising depreciation; selling plant assets LO C2, P1, P2

Yoshi Company completed the following transactions and events involving its delivery trucks.

2016

Jan.		1		Paid $23,515 cash plus $1,785 in sales tax for a new delivery truck estimated to have a five-year life and a $2,450 salvage value. Delivery truck costs are recorded in the Trucks account.
Dec.		31		Recorded annual straight-line depreciation on the truck.

2017

Dec.

31

Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,550. Recorded annual straight-line depreciation on the truck.

2018

Dec.		31		Recorded annual straight-line depreciation on the truck.
Dec.		31		Sold the truck for $5,500 cash.

Required:

1-a. Calculate depreciation for year 2017.
1-b. Calculate book value and gain (loss) for sale of Truck on December, 2018.
1-c. Prepare journal entries to record these transactions and events.

Required 1A

Required 1B

Required 1C

Calculate depreciation for year 2017.

	Total cost Less accumulated depreciation (from 2016) Book value Less revised salvage value Remaining cost to be depreciated Years of life remaining Total depreciation for 2017

Required 1B

Required 1C

Calculate book value and gain (loss) for sale of Truck on December, 2018.

Depreciation expense (for 2016) Depreciation expense (for 2017) Depreciation expense (for 2018) Accumulated depreciation 12/31/2018 Book value of truck at 12/31/2018 Total cost Accumulated depreciation Book value 12/31/2018 Prepare journal entries to record these transactions and events. Journal entry worksheet Record the total cost of the new delivery truck. Journal entry worksheet Record the year-end adjusting entry for the depreciation expense of the delivery truck.

Journal entry worksheet

Record the year-end adjusting entry for the depreciation expense of the delivery truck.

Journal entry worksheet

Record the year-end adjusting entry for the depreciation expense of the delivery truck.

Journal entry worksheet

Record the sale of the delivery truck for $5,500 cash.

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$15 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

            
January (actual)   21,800   June (budget)   51,800
February (actual)   27,800   July (budget)   31,800
March (actual)   41,800   August (budget)   29,800
April (budget)   66,800   September (budget)   26,800
May (budget)   101,800        

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4.90 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable:           
Sales commissions      4   % of sales
Fixed:           
Advertising   $   290,000     
Rent   $   27,000     
Salaries   $   124,000     
Utilities   $   11,500     
Insurance   $   3,900     
Depreciation   $   23,000     

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $20,500 in new equipment during May and $49,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $21,750 each quarter, payable in the first month of the following quarter.

The company’s balance sheet as of March 31 is given below:

         
Assets
Cash   $   83,000
Accounts receivable ($41,700 February sales; $501,600 March sales)      543,300
Inventory      130,928
Prepaid insurance      25,500
Property and equipment (net)      1,040,000
Total assets   $   1,822,728
Liabilities and Stockholders’ Equity
Accounts payable   $   109,000
Dividends payable      21,750
Common stock      980,000
Retained earnings      711,978
Total liabilities and stockholders’ equity   $   1,822,728

The company maintains a minimum cash balance of $59,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $59,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

1. a. A sales budget, by month and in total.

b. A schedule of expected cash collections, by month and in total.

c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $59,000.

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

4. A budgeted balance sheet as of June 30.

Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1, the beginning of its fiscal year, are given below: Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash $69,000 Accounts receivable 108,000 Inventories: Raw materials (film, costumes) $36,000 Videos in process 51,000 Finished videos awaiting sale 87,000 174,000 Prepaid insurance 10,200 Total current assets 361,200 Studio and equipment 742,000 Less accumulated depreciation 216,000 526,000 Total assets $887,200 Liabilities and Stockholders' Equity Accounts payable $185,200 Capital stock $426,000 Retained earnings 276,000 702,000 Total liabilities and stockholders' equity $887,200 Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company’s predetermined overhead rate for the year is based on a cost formula that estimated $200,000 in manufacturing overhead for an estimated allocation base of 4,000 camera-hours. The following transactions were recorded for the year: a. Film, costumes, and similar raw materials purchased on account, $191,000. b. Film, costumes, and other raw materials issued to production, $206,000 (75% of this material was considered direct to the videos in production, and the other 25% was considered indirect). c. Utility costs incurred in the production studio, $78,000 for account. d. Depreciation recorded on the studio, cameras, and other equipment, $90,000. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred, $136,000 for account. f. Costs for salaries and wages were incurred as follows: Direct labor (actors and directors) $ 88,000 Indirect labor (carpenters to build sets, costume designers, and so forth) $ 116,000 Administrative salaries $ 101,000 g. Prepaid insurance expired during the year, $7,600 (70% related to production of videos, and 30% related to marketing and administrative activities). h. Miscellaneous marketing and administrative expenses incurred, $9,200 for account. i. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,000 camera-hours of activity during the year. j. Videos that cost $556,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment. k. Sales for the year totaled $937,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $606,000. l. Collections from customers during the year totaled $856,000. m. Payments to suppliers on account during the year, $506,000; payments to employees for salaries and wages, $291,000. Required: 1&2. Prepare a T-account for each account on the company’s balance sheet, and enter the beginning balances. Make an entry directly into the T-accounts for transactions (a) through (m). 3. Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? By how much? 4. Prepare an income statement for the year. rev: 09_22_2017_QC_CS-101615 ReferenceseBook & Resources WorksheetLearning Objective: 02-02 Apply overhead cost to jobs using a predetermined overhead rate.Learning Objective: 02-07 Compute underapplied or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts.

OVERHEAD APPLICATION, FIXED AND VARIABLE OVERHEAD VARIANCES

Tules Company is planning to produce 2,400,000 power drills for the coming year. The company uses direct labour hours to assign overhead to products. Each drill requires 0.5 standard hour of labour for completion. The total budgeted overhead was $2,700,000. The total fixed overhead budgeted for the coming year is $1,320,000. Predetermined overhead rates are calculated using expected production, measured in direct labour hours. Actual results for the year are:

Actual production (units)    2,360,000

Actual direct labour hours 1,190,000

Actual variable overhead    $1,410,000

Actual fixed overhead         $1,260,000

Required:

1.    Compute the applied fixed overhead.

2.    Compute the fixed overhead spending and efficiency variances.

3.    Compute the applied variable overhead.

4.    Compute the variable overhead spending and volume variances.

We are reading Financial Accounting, Ch. 6: Reporting and Analyzing Inventory and below I am having difficulty with.

What are some inventory classification methods​?

1.A list of all the accounts used by a company showing an identifying number for each account is called:

A balance sheet

A general journal

An Inventory Journal

A chart of accounts

Subsidiary ledgers

2.Bellwether Garden Supply's account number for their Payroll Checking account is:

  

Account No. 10300

Account No. 10100

Account No. 10400

Account No. 12000

Account No. 10200

3.If an inventory item is damaged make the following selections from the Navigation Bar to record the damage:

Inventory & Services Navigation Center > click on the Track Packages icon

Vendors & Purchases > link to View and Edit Bills

Inventory & Services Navigation Center > click on the Prices icon

Inventory & Services Navigation Center > click on the Inventory Count icon

4.Inventory & Services Navigation Center > click on the Inventory Adjustments icon

If your GL Account columns and A/P Account field are not displayed on the Purchases/Receive Inventory window, you need to:

Reset the defaults in the Accounting Behind the Screens selection

Click on Options; Global and uncheck the three boxes in the Hide General Ledger Accounts section

Check the Tasks windows

Check the maintenance menus

Accounting Behind the Screens cannot be changed

5.On the Navigation Bar, make the following selections to make a general journal entry:

System Navigation Center > link to Restore a backup > click on the General Journal Entry icon

Banking Navigation Center > link to General Journal Entry > select New General Journal Entry

Maintain > select General Journal record

Banking Navigation Center > click on the Write Checks icon > select New Check

Inventory & Services Navigation Center > click on the Chart of Accounts icon > select View and Edit Accounts

6.On the Navigation Bar, make the following selections to set up an inventory item:

Inventory & Services Navigation Center > click on the Inventory Items icon > select New Inventory Item

Vendors and Purchases Navigation Center > click on the Vendors icon > select View and Edit Vendors

Inventory & Services Navigation Center > click on the Assemblies icon > select Build New Assemblies

Inventory & Services Navigation Center > click on the Receive Inventory icon > select View and Edit Purchases

Inventory & Services Navigation Center > link to Edit vendor items

7.Sage 50's help topics are displayed in the following way

PDF

DOC

XLS

HTML

PTB

8.The Item ID for Oriole Feeder is:

Avry-10300

Oriole-10320

AVRY-10300

avry-10300

avrY-10300

9.To transfer money to the Money Market Fund, make the following type of entry:

General Journal

Tasks

Payments  

Maintenance

Receipts

10. When you purchase inventory stock items, the journal entry is:

Dr. the Accounts Payable/Vendor account; Cr. The Inventory account

Dr. the Expense account; Cr. the vendor account         

Dr. the Cash account; Cr. the Revenue account

Dr. the Inventory account; Cr. The Accounts Payable/Vendor account

Dr. the Accounts Receivable/Customer account; Cr. the Sales account

Why is it so difficult to change the culture of an organization? Is it worth the effort?  Provide an example of a workplace culture you've witnessed a change.

Consider the following information from Manufacturing Inc., then see the instructions that
follow.
Manufacturing Inc. manufactures plastic thing-a-majigs. Materials are added at the beginning
of the production process and conversion costs are incurred uniformly. Production and cost
data for the month of June, 2016 are as follows.
	Production data				Units		Percent Complete
	Work in process units, June 1				2,600		61%
	Units started into production				6,285
	Work in process units, June 30				3,000		38%
	Cost data
	Work in process, June 1
	Materials			$7,250
	Coversion costs			6,050	$13,300
	Direct materials				23,600
	Direct labor				15,850
	Manufacturing overhead				12,750
Instructions:
Prepare a production cost report for the month of June, making sure to show equivalent
units of production for materials and conversion costs, unit costs of production for materials
and conversion costs, and the assignment of costs to units transferred out and in process at
the end of June.
THIS ASSIGNMENT MUST BE COMPLETED IN EXCEL. You should develop an efficient and
customizable production cost report, using formulas whenever possible instead of keyed in
values. No numeric values except the ones shown above should need to be keyed in.

1. You are evaluating the purchase of either of two machines used in your brewery. Machine A will last two years, costs $8,000 initially, and then $1,250 per year in maintenance costs. Machine B costs $9,500 initially, has a life of three years, and requires $1,000 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. Your interest rate on current debt and the initial purchases is 9 percent and the tax rate is zero. Explain your processes and assumptions

Wal Mart Stores Consolidated Income Statement (amounts in millions)

Year 4             Year 5             Year 6             Year 7

Sales Revenues                                               $83,412           $94,749           $106,146

Cost of Goods Sold                                        $65,586           $74,564           $83,663

Accounts Receivables             $ 690              $     900           $      853          $      845         

Inventories                              $11,014           $14,064           $15,989           $ 15,897                     

Question # 6

Please calculate the accounts receivable and inventory ratios for years 5 thru 7.

Question # 7

Does any of the inventory scenarios and interpretations that we discussed at the end of session 4 apply here?

Question # 8

Why does Wal Mart have such a big difference between its account receivable turnover ratios and inventory ratios? Does it have anything to do with the line of business it is active?

home / study / business / operations management / operations management questions and answers / big bend medical center

QUESTION: If the true cost concept is applied, what would be the allocation in the 21st year, after the mortgage had been paid off?

Big Bend Medical Center is a full-service, not-for-profit acute care hospital with 325 beds. The bulk of the hospital’s facilities are devoted to inpatient care and emergency services. However, a 100,000 square-foot section of the hospital complex is devoted to outpatient services. Currently, this space has two primary uses. About 80 percent of the space is used by the Outpatient Clinic, which handles all routine outpatient services offered by the hospital. The remaining 20 percent is used by the Dialysis Center. The Dialysis Center performs hemodialysis and peritoneal dialysis, which are alternative processes for removing wastes and excess water from the blood for patients with end-stage renal (kidney) disease. In hemodialysis, blood is pumped from the patient’s arm through a shunt into a dialysis machine, which uses a cleansing solution and an artificial membrane to perform the functions of a healthy kidney. Then, the cleansed blood is pumped back into the patient through a second shunt. In peritoneal dialysis, the cleansing solution is inserted directly into the abdominal cavity through a catheter. The body naturally cleanses the blood through the peritoneum—a thin membrane that lines the abdominal cavity. Typically, hemodialysis patients require three dialyses a week, with each treatment lasting about four hours. Patients who use peritoneal dialysis change their own cleansing solutions at home, usually about six times per day. This procedure can be done manually when active or automatically by machine when sleeping. However, the patient’s overall condition, as well as the positioning of the catheter, must be monitored regularly at the Dialysis Center. Big Bend’s cost accounting system, which was installed two years ago, allocates facilities costs (which at Big Bend essentially consist of building depreciation and interest on long-term debt) on the basis of square footage. Currently, the facilities cost allocation rate is $15 per square foot, so the facilities cost allocation is 20,000 × $15 = $300,000 for the Dialysis Center and 80,000 × $15 = $1,200,000 for the Outpatient Clinic. All other overhead costs, such as administration, finance, maintenance, and housekeeping, are lumped together and called “general overhead.” These costs are allocated on the basis of 10 percent of the revenues of each patient service department. The current allocation of general overhead is $270,000 for the Dialysis Center and $1,600,000 for the Outpatient Clinic, which results in total overhead allocations of $570,000 for the Dialysis Center and $2,800,000 for the Outpatient Clinic. Recent growth in volume of the Outpatient Clinic has created a need for 25 percent more space than currently assigned. Because the Outpatient Clinic is much larger than the Dialysis Center, and because its patients need frequent access to other departments within the hospital, the decision was made to keep the Outpatient Clinic in its current location and to move the Dialysis Center to another location to free up space. Such a move would boost the Outpatient Clinic space to 100,000 square feet, a 25 percent increase. After attempting to find new space for the Dialysis Center within the hospital complex, it was soon determined that a new 20,000 square foot building must be built. This building will be situated three blocks away from the hospital complex, in a location that is much more convenient for dialysis patients (and Center employees) because of ease of parking. The 20,000 square feet of space, which can be more efficiently utilized than the old space, allows for a substantial increase in patient volume, although it is unclear whether the move will result in additional dialysis patients. Construction cost of the new building is estimated at $120 per squarae foot, for a total cost of $2,4000,000. Additionally, the purchase of land, furniture and other fittings, along with relocation of current equipment, files and other items, would cost $1,600,000, for a total cost of $4,000,000. The $4,000,000 cost would be financed by a 7.75%, 20-year, first-mortgage loan. With both the principal amount (which can be considered depreciation) and interest are amortized over 20 years, the end result is an annual cost of financing of $4,000,000. Thus, it is possible to estimate the actual annual facilities costs for the new Dialysis Center, something that is not possible for units located within the hospital complex. Table 1 contains the projected profit and loss (P&L) statement for the Dialysis Center before adjusting for the move. The hospital’s department heads receive annual bonuses on the basis of each department’s contribution to the bottom line (profit). In the past, only direct costs were considered, but the hospital’s chief executive officer (CEO) has decided that bonuses would now be based on full (total) costs. The new approach to awarding bonuses, coupled with the potential for increases in indirect cost allocation, is of great concern to John Van Pelt, the director of the Dialysis Center. Under the current allocation of indirect costs, John would have a reasonable chance at an end-of-year bonus, as the forecast puts the Dialysis Center in the black. However, any increase in the indirect cost allocation would likely put him out of the money. At the next department heads’ meeting, John expressed his concern about the impact of any allocation changes on the Dialysis Center’s profitability, so the hospital’s CEO asked the chief financial officer (CFO), Rick Simmons, to look into the matter. In essence, the CEO said that the final allocation is up to Rick but that any allocation changes must be made within outpatient services. In other words, any change in indirect cost allocation to the Dialysis Center must be offset by an equal, but opposite, change in the allocation to the Outpatient Clinic. To get started, Rick created Table 2 (see Excel spreadsheet). In creating the table, Rick assumed that the new Dialysis Center would have the same number of stations as the old one, would serve the same number of patients, and would have the same reimbursement rates. Also, direct operating expenses would differ only slightly from the current situation because the same personnel and equipment would be used. Thus, for all practical purposes, the revenues and direct costs of the Dialysis Center would be unaffected by the move. The data in Table 2 for the expanded Outpatient Clinic are based on the assumption that the expansion would allow volume to increase by 25 percent and that both revenues and direct costs would increase by a like amount. Furthermore, to keep the analysis manageable, the assumption was made that the overall hospital allocation rates for both facilities costs and general overhead would not materially change because of the expansion. Rick knew that his “trial balloon” allocation, which is shown in Table 2 in the columns labeled “Initial Allocation,” would create some controversy. In the past, facilities costs were aggregated; so all departments were charged a cost based on the average embedded (historical) cost regardless of the actual age (or value) of the space occupied. Thus, a basement room with no windows was allocated the same facilities costs (per square foot) as was the fifth floor executive suite. Because many department heads thought this approach to be unfair, Rick wanted to begin allocating facilities overhead on a true cost basis. Thus, in his initial allocation, Rick used actual facilities costs ($400,000 per year) as the basis for the allocation to the Dialysis Center. Needless to say, John’s response to the initial allocation was less than enthusiastic. Specifically, he was concerned over several issues. **First, is it fair for the Dialysis center to suffer (in terms of profitability) because it will be charged actual facilities costs for its new location? After all, the Outpatient Clinic forced the move, which is being charged for facilities at the lower average allocation rate. Under the concept of charging for actual facilities costs department heads might be better off by resisting proposed moves to new (and potentially more efficient) facilities because such moves would result in increased facilities allocations. **Also, even if the actual cost concept were applied to the Dialysis Center, is the $400,000 annual allocation amount correct? After all, the building has a useful life that is probably significantly longer than 20 years – the life of the loan used to determine the allocation amount. If the true cost concept is applied, what would be the allocation in the 21st year, after the mortgage had been paid off? Finally, it appears that the revenue the Dialysis Center “receives” from patient use of the pharmacy. That is, the Dialysis Center books $800,000 in annual revenue but then is charged 800,000 for the drugs used. **Should this “revenue be counted when general overhead allocations are made? To make this point, John discovered that the pharmacy supplies used for dialysis actually cost the pharmacy $400,000, so the pharmacy makes a profit of $400,000 on drugs that are actually “sold” by the Dialysis Center. Before Rick was able to respond to John’s concerns, he suddenly left the facility to be the CFO of a competing investor-owned hospital. The task of completing the allocation study was given to you. You remember that to be of most benefit to the organization, cost allocations should 1- be perceived as fair by the parties involved and 2-Promote overall cost savings within the organization. However, you also realize that, in practice, cost allocation is very complex and somewhat arbitrary. Some department heads argue that the best approach to overhead allocations is the “Marxist approach.” By which allocations are based on each patient service department’s ability to cover overhead costs. Considering all the relevant issues, you must develop and justify a new indirect cost allocation scheme for outpatient services. **Summarize the results in the “Alternative Allocation” columns in table 2. Complete the blank lines (show equation) and be prepared to justify your recommendations at the next department heads’ meeting.