Exercise 17-15 Activity-based costing LO P3

Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 40%. 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 clinics three activity cost pools and their cost drivers follow.

Activity Cost Pool	Cost		Cost Driver	Driver Quantity
Professional salaries	$	1,600,000	Professional hours		10,000
Patient services and supplies		27,000	Number of patients		600
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			600			400
Orthopedic surgery		7,500			900			200

* Orthopedic surgery requires more space for patients, supplies, and equipment. Required: 1. & 2. Compute the cost per cost driver for each of the three activity cost pools. Use the results to allocate costs 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.

General Surgery Orthopedic Surgery Activity driver Overhead Activity driverOverhead assignec Overhead Cost Activity Rate ctivity Professional salaries Patient services and supplies Building cost Activity Drivers incurredassigned incurred Professional hours Number of patients Square feelt