Question

Talbot Clinics provides medical care in three departments: internal medicine (IM), pediatrics (PD), and obstetrics gynecology (OB). The estimated costs to run each department follow:


Talbot expects to incur $450,000 of indirect (overhead) costs in the next fiscal year.

Required
a. Name four allocation bases that could be used to assign the overhead cost to each department.
b. Assume the manager of each department is permitted to recommend how the overhead cost should be allocated to the departments. Which of the allocation bases named in Requirement a is the manager of OB most likely to recommend? Explain why. What argument may the manager of OB use to justify his choice of the allocation base?
c. Which of the allocation bases would result in the fairest allocation of the overhead cost from the perspective of the company president?
d. Explain how classifying overhead costs into separate pools could improve the fairness of the allocation of the overheadcosts.


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  • CreatedFebruary 07, 2014
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