Assignment Exercise 61: Allocating Indirect Costs

Study Table 61, Table 62, and review the chapter text describing how the indirect cost is allocated. This assignment will change the allocation bases input for (A) Number of Visits (Volume), (B) Proportion of Direct Costs, and (C) Number of Computers in Service.

Required 1. Compute the costs allocated to cost centers Clerical Salaries, Administrative Salaries, and Computer Services using the new allocation bases shown below. Use worksheet #1 that replicates the set up in Table 62. Total the new results. The new allocation bases are:

A = # Visits (Volume): PT = 9,600/OT = 4,000/ST = 2,400/Total 5 16,000 (16,000 x $3.50 5 $56,000)

B = Proportion of Direct Costs: PT = 60%/OT= 25%/ST = 15%/Total = 100% (% X $55,000)

C = # Computers in Service: PT=10/OT = 3/ST = 3/Total = 16 (16 X $5,000 each = $80,000).

2. Using worksheet #2 that replicates the set up in Table 61, enter the new direct cost and the new totals for indirect costs resulting from your work. Total the new results.

SOLUTIONS FOR TABLE 6-1

Original
Table 6-2
			Clerical	Administrative	Computer
			Salaries	Salaries	Services	Total
Allocation Basis			A	B	C
Indirect Costs to be Allocated			60,000	50,000	75,000	185,000
Allocated to:
Physical Therapy (PT)			34,000	28,472	45,000	107,472
Occupational Therapy (OT)			16,000	13,194	15,000	44,194
Speech Therapy (ST)			10,000	8,333	15,000	33,333
Proof Total			60,000	50,000	75,000	185,000
Allocation Basis (IN UNITS):				PT	OT	ST	Total
A	Visit Volumes			8,500	4,000	2,500	15,000
B	Proportion of Direct Costs			57%	26%	17%	100%
C	Number of Computers in Service			9	3	3	15
Allocation Basis (SHOWN AS A PERCENTAGE):				PT	OT	ST	Total
A	Visit Volumes			57%	27%	17%	100%
B	Proportion of Direct Costs			57%	26%	17%	100%
C	Number of Computers in Service			60%	20%	20%	100%
Original
Table 6-1							Proportion of
			Direct Cost	Indirect Cost	Total		Direct Costs
Physical Therapy (PT)			410,000	107,500	517,500		57%
Occupational Therapy (OT)			190,000	44,000	234,000		26%
Speech Therapy (ST)			120,000	33,500	153,500		17%
Totals			720,000	185,000	905,000		100%

SOLVE TABLE 6-2

New
Table 6-2
			Clerical	Administrative	Computer
			Salaries	Salaries	Services	Total
Allocation Basis			A	B	C
Indirect Costs to be Allocated
Allocated to:
Physical Therapy (PT)
Occupational Therapy (OT)
Speech Therapy (ST)
Proof Total
Allocation Basis (IN UNITS):				PT	OT	ST	Total
A	Visit Volumes
B	Proportion of Direct Costs
C	Number of Computers in Service
Allocation Basis (SHOWN AS A PERCENTAGE):
A	Visit Volumes
B	Proportion of Direct Costs
C	Number of Computers in Service
New
Table 6-1							Proportion of
			Direct Cost	Indirect Cost	Total		Direct Costs
Physical Therapy (PT)			410,000
Occupational Therapy (OT)			190,000
Speech Therapy (ST)			120,000
Totals			720,000