a. Mr. Smith, the financial controller of LabAid, is convinced that the step-down method allocates more costs to the operating departments than does the direct method. Do you agree with Mr. Smith? Explain. b. Assume that you are the manager of the Daily Patient department. Discuss which method of cost allocation would you prefer. Justify your decision.
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a. Mr. Smith, the financial controller of LabAid, is convinced that the step-down method allocates more costs to the operating departments than does the direct method. Do you agree with Mr. Smith? Explain.
b. Assume that you are the manager of the Daily Patient department. Discuss which method of cost allocation would you prefer. Justify your decision.
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- Health-Temp Company is a placement agency for temporary nurses. It serves hospitals and clinics throughout the metropolitan area. Health-Temp Company believes it will place temporary nurses for a total of 23,500 hours next year. Health-Temp charges the hospitals and clinics 90 per hour and has variable costs of 75.60 per hour (this includes the payment to the nurse). Total fixed costs equal 321,000. Required: 1. Calculate the contribution margin per unit and the contribution margin ratio. 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 100,000. 4. What if Health-Temp had target operating income (profit) of 110,000? Would sales revenue be larger or smaller than the one calculated in Requirement 3? Why? By how much?The Housekeeping Services department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs during 2007. These costs must be allocated to Ruger’s three revenue-producing patient services departments using the direct method. Two cost drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenues during 2007, and to support these clinical activities, they used 5,000 hours of housekeeping services. a. What is the value of the cost pool? b. What is the allocation rate if: • patient services revenue is used as the cost driver? • hours of housekeeping services is used as the cost driver?General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services: Fixed costs $1,093,754 Variable cost per inpatient day $19 Charge (revenue) per inpatient day $105 The hospital expects to have a patient load of 1,599 inpatient days next year. Assume that 18 percent of the hospital's inpatient days come from a managed care plan that wants a 27 percent discount from charges. What is the change in profit if the hospital accepts the proposal?
- Yellville Regional Hospital is a small hospital with two service departments and three revenue areas: Service Department Direct Costs Square Feet Laundry Pounds Housekeeping (HK) $ 80,000 - 16,000 Laundry $ 132,000 500 - Revenue Areas: Surgery $ 400,000 1,500 48,000 Semiprivate rooms $ 200,000 2,000 24,000 Maternity $ 150,000 1,000 12,000 The hospital wants to allocate the service department costs to the revenue areas. Housekeeping is allocated based on square footage; Laundry is allocated based on pounds of laundry. The normal capacity for Surgery is 200 hours per month; normal capacity for semiprivate rooms is 600 patient days; and normal capacity for maternity is 200 patient days.Required:Determine the overhead rate for the three revenue areas. Allocate the service department costs to the revenue…The housekeeping services department of Ruger Clinic, a multispecialty practice had $100,000 in direct costs this year. The patient services department generated $5,000,000 in patient revenue and the departments used a total of 5,000 total hours of housekeeping.The adult services department generated $3 million in patient revenue and used 1,500 housekeeping hours what is dollar allocation if patient services is used as the cost driverThe Housekeeping Services Department of Ruger Clinic, had $100,000 in direct costs during the year. Department Revenue HK Hours Adult Services $3,000,000 1,500 Pediatric Services $1,500,000 3,000 Other Services $ 500,000 500 Total $5,000,000 5,000 What is the value of the cost pool? Which of the two cost drivers is better? Patient service revenue or housekeeping hours? Why?
- Jasmine Gonazles, Administrative Director of Small Imaging Center, has been asked by the practice members to see if it is feasible to add more staff to support the practice's mammography service, which currently has (2) analogue film or screen units and (2) technologists. She has compiled the following information to help make the decision: Reimbursement per mammography $75 Equipment costs per month $1600 Technologist cost per mammography $20 Technologist aide cost per mammography $4 Variable cost per mammography $10 Monthly maintenance per machine $700 What is the monthly patient volume needed per month to cover fixed and variable costs? What is the monthly patient volume needed per month if Small Imaging Center desires to cover its fixed and variable costs and make a $5,000 profit on this equipment to cover other costs associated with the organization? If reimbursement decreases to $55 per screen, what is the monthly patient…Jasmine Gonazles, Administrative Director of Small Imaging Center, has been asked by the practice members to see if it is feasible to add more staff to support the practice's mammography service, which currently has (2) analogue film or screen units and (2) technologists. She has compiled the following information to help make the decision: Reimbursement per mammography $75 Equipment costs per month $1600 Technologist cost per mammography $20 Technologist aide cost per mammography $4 Variable cost per mammography $10 Monthly maintenance per machine $700 If a new technologist aide is hired in addition to the two technologists, what is the monthly patient volume needed at the original reimbursement rate to cover variable costs, but not profit?Bluegrass Community Hospital (BCH) has the following payer groups: Number of Admissions Average Revenue per Admission Variable Cost per Admission Commercial 1,000 $5,000 $3,000 BCBS 4,000 $4,500 $4,000 Medicare 8,000 $7,000 $2,500 Given: BCH annual fixed costs are $38M What is BCH’s net income? If half of the 100,000 covered lives in the Commercial group moved to a capitated rate and utilization and cost data remained the same, what PMPM rate should be charged to maintain the Commercial group net income share? What would BCH net income be if the Commercial capitated group admissions decreased by 10%? What would BCH net income be if the Commercial capitated group admissions decreased by 10% and variable costs for the Commercial capitated group decreased to $2,200?
- Assume that the manager of the rehabilitation department of Getwell Hospital is setting the price on a new outpatient service for electrical stimulation of muscles. Here are the relevant data estimates: Variable cost per visit: $15.00 Annual direct fixed costs: $650,000 Annual overhead allocation: $75,000 Expected annual visits: 8,000 What price per visit must be set for the service to breakeven?One division of Heartwood Cabinets anticipates the following costs for the next year: Cost Budget Facilities rent $ 72,000 Utilities $ 28,000 Taxes $ 17,000 Wages for production workers $ 555,000 Management salaries and benefits $ 320,000 Wages for shipping and handling workers $ 256,000 Direct materials for cabinets $ 350,000 Supplies $ 38,000 Indirect materials $ 120,000 Equipment rental $ 32,000 Advertising $ 25,000 Repairs and maintenance $ 36,000 Travel $ 95,000 The company uses machine hours as the sole cost driver of variable overhead. Based on prior years, Heartwood estimates it will take 0.30 of machine hours per cabinet produced. Budgeted output is 75,000 cabinets. Actual output is 73,000 cabinets and it really takes 0.40 machine hours to produce one cabinet. Actual variable overhead costs are $474,500. Actual fixed overhead costs are $600,000. Required: Calculate budgeted variable overhead for the year. Calculate the variable overhead…Fulton National Hospital is reviewing ways of cutting the costs for stocking medical supplies. Two new stockless systems are being considered to lower the hospital's holding and handling costs. The hospital's industrial engineer has compiled the relevant financial data for each system, as follows, where dollar values are in millions: The system life of eight years represents the contract period with the medicalsuppliers. If the hospital's MARR is 10%, which system is more economical?