Phoenix Medical Associates operates a walk-in medical clinic in Tempe, Arizona. The clinic includes two different departments, Urgent Care, which serves patients with minor to moderate acute illnesses and injuries, and Living Well, which administers vaccines, school and work physicals, and conducts workshops on healthy living topics. The center’s budget for 2020 follows.

Anita Alvarez, the director of the clinic, is keen on determining the cost of each department. Alvarez compiles the following data describing employee allocations to individual departments:

Alvarez has recently become aware of activity-based costing as a method to refine costing systems. She asks her accountant, David Burke, how she should apply this technique. Burke obtains the following budgeted information for 2020:

Required

1. a. Selecting cost-allocation bases that you believe are the most appropriate for allocating indirect costs to departments, calculate the budgeted indirect cost rates for medical supplies, rent and clinic maintenance, laboratory services, and general overhead.
b. Using an activity-based costing approach to cost analysis, calculate the budgeted cost of each department and the budgeted cost per patient visit of each department.
c. What benefits can Phoenix Medical Associates obtain by implementing the ABC system?
2. What factors, other than cost, do you think Phoenix Medical Associates should consider in allocating resources to its departments?

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Professional salaries: 4 physicians $200,000 2 X-ray technicians x $50,000 12 nurses × $60,000 1 nutritionist X $50,000 Medical supplies Rent and clinic maintenance Laboratory services General overhead, including administrative staff Total $800,000 100,000 720,000 50,000 $1,670,000 600,000 180,000 216,000 540,000 $3,206,000