Surgery Center is an outpatient surgical clinic that was profitable for many yea

Question

Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 40%. 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 Activity Cost Poo1 Professional salaries Patient services and supplies Building cost Cost Cost Driver $1,215,000 Professional hours iver Quantity 20,000 Number of patients 105,000 Square feet 9,000 500 1,400 The two main surgical units and their related data follow Service Ceneral surgery Orthopedie surgery Hours Square Feet Patients 2, 000 7,000 550 850 350 150 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 General Surgery Orthop

Explanation / Answer

Compute cost per cost driver of each activity and cost allocated :

General surgery Orthopedic surgery Activity Overhead cost Activity driver Activity rate Activity driver incurred Overhead assigned Activity driver incurred Overhead assigned Profession salaries 1215000 9000 Profession hour 135 per hour 2000 270000 7000 945000 Patient services and supplies 20000 500 number of patients 40 per patients 350 14000 150 6000 Building cost 105000 1400 Square feet 75 per square feet 550 41250 850 63750 Total overhead cost 325250 1014750

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