Exercise 4-15 Activity-based costing LO P3 Surgery Center is an outpatient surgi

Question

Exercise 4-15 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 mu 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. Cost Cost Driver 943,000 Professional hours Driver Quantity 8,200 Activity Cost Poo1 Professional salaries Patient services and supplies 15,12e Number of patient:s Building cost 420 72,600 Square feet 1,320 The two main surgical units and their related data follow. Hour's Square Feet" Patients 1,600 Service General surgery orthopedic surgery 6,600 510 810 310 110

Explanation / Answer

General surgery Orthopedic Surgery Activity Overhead Cost Activity Drivers Activity rate Activity driver incurred Overhead assigned Activity driver incurred Overhead assigned Professional salaries 943000 8200 Professional hours 115 per professional hour 1600 184000 6600 759000 Patient services and supplies 15120 420 Number of patients 36 per patient 310 11160 110 3960 Building cost 72600 1320 Square feet 55 per square foot 510 28050 810 44550 Total overhead cost 223210 807510 Number of patients 310 110 Average cost per patient 720 7341

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