Exercise 4-15 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 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 clinics three activity cost pools and their cost drivers follow.

Activity Cost Pool	Cost		Cost Driver	Driver Quantity
Professional salaries	$	1,075,000	Professional hours		8,600
Patient services and supplies		17,480	Number of patients		460
Building cost		88,400	Square feet		1,360

The two main surgical units and their related data follow.

Service	Hours			Square Feet*			Patients
General surgery		1,800			530			330
Orthopedic surgery		6,800			830			130

* 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.