a. The Housekeeping Department of Marshfield Clinic has direct costs of $1 milli

Question

a. The Housekeeping Department of Marshfield Clinic has direct costs of $1 million. The clinic's four patient service departments utilize the following amounts of space: Department A = 5,000 square feet, Department B = 10,000 square feet, Department C = 15,000 square feet, and Department D = 20,000. Assuming that the cost driver for housekeeping costs is the amount of occupied space, what is the allocation of housekeeping costs to Department B?

b. Carlisle Clinic, a not-for-profit organization, began 2012 with an equity balance of $1 million. Assuming Carlisle Clinic reported net income of $200,000 for the year that ended on December 31, 2011, and had no other adjustments to equity during 2011, what was Carlisle Clinic's equity balance as of December 31, 2010?

Explanation / Answer

Problem a.

Occupied space

Deparment A 5000

Department B 10,000

Department C 15,000

Department D 20,000

TOTAL 50,000 sq ft.

$ value per sq feet = $1 million/50,000sq ft.

= $20

Answer: Department B allocation = 10,000 x $20 = $200,000

Problem B

Equity balance beginning of 2012 $1,000,000

Less: Net Income 2011 (200,000)

Equity balance Dec. 31, 2010   $ 800,000   answer

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