Exercise 17-15 Activity-based costing LO P3 Surgery Center is an outpatient surg
ID: 2541053 • Letter: E
Question
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 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.
Activity Cost Pool Cost Cost Driver Driver Quantity Professional salaries $ 2,520,000 Professional hours 12,000 Patient services and supplies 44,000 Number of patients 800 Building cost 255,000 Square feet 1,700
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
1 & 2)
General Surgery Orthopedic Surgery Activity Overhead Cost (A) Activity Drivers (B) Activity Rate (C = A/B) Activity driver incurred (D) Overhead assigned (D*C) Activity driver incurred (E) Overhead assigned (E*C) Professional salaries $2,520,000 12,000 Professional hours $210 per hour 3,500 hours $735,000 8,500 hours $1,785,000 Patient services and supplies $44,000 800 Number of patients $55 per patient 500 patients $27,500 300 patients $16,500 Building cost $255,000 1,700 Square feet $150 per feet 700 feet $105,000 1,000 feet $150,000 Total Overhead assigned (1) $867,500 Total Overhead assigned (3) $1,951,500 Total Patients (2) 500 patients Total Patients (4) 300 patients Average Cost per patient (1/2) $1,735 per patient Average Cost per patients (3/4) $6,505 per patientRelated Questions
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