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 clinic's three cost centers and their cost drivers follow.

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. Compute the cost per cost driver for each of the three cost centers.
2. Use the results from part 1 to allocate costs from each of the three cost centers 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.

Transcribed Image Text:

Cost Center Professional salaries Patient services and supplies Cost Cost Driver Professional hours Number of patients Square feet Driver Quantity $1,600,000 0,000 27,000 150,000 Building cost 1,500