Surgery Center is an outpatient surgical clinic that was profitable for many yea
ID: 2341518 • Letter: S
Question
Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 30%. 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 activity cost pools and their cost drivers follow.
The two main surgical units and their related data follow.
* 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.
Explanation / Answer
Step: 1 - Cost per each cost driver
Particulars
Calculation
Per unit Cost ($)
1. Professional Salaries per hour
=1683000/10200
165
2. Patient services and supplies/ Patients
=28520/620
46
3. Building Cost/ Sq ft
=159600/1520
105
Step: 2 - Cost of general surgery
Particulars
Requirement
Units
Per unit Cost ($)
Total Cost ($)
Professionals
2600
hrs
165
4,29,000.00
Patient services
410
Patients
46
18,860.00
Building Cost
610
Sq Ft
105
64,050.00
Total Cost
5,11,910.00
Average Cost
1,248.56
Step: 3 - Cost of Orthopedic surgery
Particulars
Requirement
Units
Per unit Cost ($)
Total Cost ($)
Professionals
7600
Hrs
165
12,54,000.00
Patient services
210
Patients
46
9,660.00
Building Cost
910
Sq Ft
105
95,550.00
Total Cost
13,59,210.00
Average Cost
6,472.43
Step: 1 - Cost per each cost driver
Particulars
Calculation
Per unit Cost ($)
1. Professional Salaries per hour
=1683000/10200
165
2. Patient services and supplies/ Patients
=28520/620
46
3. Building Cost/ Sq ft
=159600/1520
105
Step: 2 - Cost of general surgery
Particulars
Requirement
Units
Per unit Cost ($)
Total Cost ($)
Professionals
2600
hrs
165
4,29,000.00
Patient services
410
Patients
46
18,860.00
Building Cost
610
Sq Ft
105
64,050.00
Total Cost
5,11,910.00
Average Cost
1,248.56
Step: 3 - Cost of Orthopedic surgery
Particulars
Requirement
Units
Per unit Cost ($)
Total Cost ($)
Professionals
7600
Hrs
165
12,54,000.00
Patient services
210
Patients
46
9,660.00
Building Cost
910
Sq Ft
105
95,550.00
Total Cost
13,59,210.00
Average Cost
6,472.43
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