activity base costing

Project Description:

we care 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 . . . . . . . . . . . . . . . . $1,500,000 professional hours 10,000
patient services and supplies . . . . . . . . . 25,000 number of patients 500
building cost . . . . . . . . . . . . . . . . . . . . . 150,000 square feet 1,500
the two main surgical units and their related data follow.
service hours square feet* patients
general surgery . . . . . . . . . . . . 2,500 500 400
orthopedic surgery . . . . . . . . . 7,500 1,000 100
* orthopedic surgery requires more space for patients, supplies, and equipment.
required
1. compute the cost per cost driver for each of the three cost 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. compute total cost and average cost per patient for both the
general surgery and the orthopedic surgery units.
analysis component
3. without providing computations, would the average cost of general surgery be higher or lower if all
center costs were allocated based on the number of patients? explain.
Skills Required:
Project Stats:

Price Type: Negotiable

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