David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below. Square Footage Direct Lab Tests Expenses $200,000 Utilities Administration 2,000 Laboratory Day-op suite Cystoscopy Endoscopy 500,000 625,000 2,000 3,000 1,500 1,500 1,400,000 300,000 4,000 500 600,000 $3,375,000 500 Total 10,000 5,000 62 500 What are the endoscopy department's total expenses?

David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below. Square Footage Direct Lab Tests Expenses $200,000 Utilities Administration 2,000 Laboratory Day-op suite Cystoscopy Endoscopy 500,000 625,000 2,000 3,000 1,500 1,500 1,400,000 300,000 4,000 500 600,000 $3,375,000 500 Total 10,000 5,000 62 500 What are the endoscopy department's total expenses?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 17E: Deepa Dalal opened a free-standing radiology clinic. She had anticipated that the costs for the...

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Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service linesthe Emergency Room (ER) and the Operating Room (OR). SHHs current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal 300,000. The table below shows expected patient volume for both lines. After discussion with several experienced nurses, Jack Bauer (SHHs accountant) decided that assigning nursing costs to the two service lines based on the number of times that nurses must check patients vital signs might more closely match the underlying use of costly hospital resources. Therefore, for comparative purposes, Jack decided to develop a second cost system that assigns total nursing costs to the ER and OR based on the number of times nurses check patients vital signs. This system is referred to as the vital-signs costing system. The earlier table also shows data for vital signs checks for lines. In an effort to better plan for and control OR costs, SHH management asked Jack to calculate the flexible budget variance (i.e., flexible budget costs - actual costs) for OR nursing costs, including the price variance and efficiency variance. Given that Jack is interested in comparing the reported costs of both systems, he decided to prepare the requested OR variance analysis for both the current cost system and the vital-signs costing system. In addition, Jack chose to use each cost systems estimate of the cost per OR nursing hour as the standard cost per OR nursing hour. Jack collected the following additional information for use in preparing the flexible budget variance for both systems: Actual number of surgeries performed = 950 Standard number of nursing hours allowed for each OR surgery = 5 Actual number of OR nursing hours used = 5,000 Actual OR nursing costs = 190,000 What does each of the calculated variances suggest to Jack regarding actions that he should or should not take with respect to investigating and improving each variance? Also, briefly explain why the variances differ between the two cost systems.
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?
Dr. Mirwais Amiri, chairman of the Amiri Medical Complex (AMC), is concerned about the costs for tests in the hospital’s lab. Charges for lab tests are consistently higher at AMC than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs. Dr. Amiri has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available: Two types of tests are performed in the lab—blood tests and smears. During the past month, 1,800 blood tests and 2,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $28,200. 1,500 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month. During the past month, 1,150 hours of labor time…
Janet Gilbert is director of labs. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently had a study conducted and has determined that her costs for these contracts are $50,000, of which $7,000 is the variable cost of supplies. The rest is non-avoidable fixed cost. She currently charges an average of $30 per test. She is thinking of lowering her price by 20% in hopes of raising her current volume of 20,000 tests by 25%. If she does so, she expects her variable cost per test will go up by 5%. Determine the following: What are the current revenues and the predicted revenues if these changes are made? What are the current variable costs and the predicted variable costs if these changes are made? What is the total contribution margin and the predicted contribution margin if these changes are made? What is the product margin? Should Janet make these proposed changes to her fees? You will answer YES…
Janet Gilbert is director of labs. She has some extra capacity and has contracted with some small neighboring hospitals to run some of their lab tests. She has recently had a study conducted and has determined that her costs for these contracts are $50,000, of which $7,000 is the variable cost of supplies. The rest is non-avoidable fixed cost. She currently charges an average of $30 per test. She is thinking of lowering her price by 20% in hopes of raising her current volume of 20,000 tests by 25%. If she does so, she expects her variable cost per test will go up by 5%. Determine the following: What are the current revenues and the predicted revenues if these changes are made? What are the current variable costs and the predicted variable costs if these changes are made? What is the total contribution margin and the predicted contribution margin if these changes are made? What is the product margin? Should Janet make these proposed changes to her fees? You will answer YES…
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in thehospital’s lab. Charges for lab tests are consistently higher at Valley View than at other hospitals andhave resulted in many complaints. Also, because of strict regulations on amounts reimbursed for labtests, payments received from insurance companies and governmental units have not been high enoughto cover lab costs.Mr. Fleming has asked you to evaluate costs in the hospital’s lab for the past month. The followinginformation is available:a. Two types of tests are performed in the lab—blood tests and smears. During the past month, 1,800 bloodtests and 2,400 smears were performed in the lab.b. Small glass plates are used in both types of tests. During the past month, the hospital purchased12,000 plates at a cost of $28,200. This cost is net of a 6% quantity discount. 1,500 of these plateswere unused at the end of the month; no plates were on hand at the beginning of the month.c.…
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?
A clinic at unniversity is run as a profit center. The dean of student services was reviewing the expenses on last month's financial report for the clinic, which also treated non-students on a fee-forservice basis. During the month the buildings furnace needed to be replaced, and the non-student department of the clinic was charged $400 for its share in addition to its normal fixed overhead assessment, which was $800. The dean was concerned because actual departmental expenses exceed budget but then noticed that 250 non-student patients had been treated, compared to a budget estimate of 150. and costs to serve the patients per unit were 10 percent below the $85.00 budgeted. Questions: a. How much was the total expenses variance? Was it favorable or unfavorable? b. what was the variance for the variable costs? was it favorable or unfavorable? c. what was the flexible budget estimate? d. what was the volume variance for the patient costs? the cost variance for patient costs?
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital’s lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs. Mr. Fleming has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available: Two types of tests are performed in the lab—blood tests and smears. During the past month, 400 blood tests and 2,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $37,440. 1,400 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month. During the past month, 1,400 hours of…
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital’s lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs. Mr. Fleming has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available: Two types of tests are performed in the lab—blood tests and smears. During the past month, 1,500 blood tests and 4,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 22,000 plates at a cost of $52,800. 3,400 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month. During the past month, 3,400 hours of labor…
The 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?