FINAL rvw_Cost Allocation Examples

FINAL rvw_Cost Allocation Examples - invoices/bills...

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Cost Allocation Example Cateret Clinic has two patient service departments, internal medicine and pediatrics. These departments are supported by the billing department, the housekeeping department, and the administration department. The following data have been assembled by the practice manager: Department Direct Costs # of housekeeping hours # of invoices/bills Revenue Billing $150,000 50 20 Housekeeping $100,000 50 100 Administration $200,000 30 50 Internal Medicine $500,000 100 2000 $1,000,000 Pediatrics $650,000 150 2500 $1,200,000 Assume that housekeeping provides the most services to the other departments followed by billing then administration. The practice manager has determined that the cost driver for housekeeping is the number of housekeeping hours, the cost driver for billing is the # of
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Unformatted text preview: invoices/bills generated, and the cost driver for administration is revenue. Using the step-down method, allocate all support department costs to the patient service departments. Exam question where or not cost drivers are good Totals: IM = $698,763.03 (full costs bc they include everything) Ped = $901,277.05 $1,600,040.08 (total costs after allocation) $1,600,000 (total original direct costs from above) Setp-down diff from direct method: allocating costs to support depts BEFORE you get the costs down to the service depts HK costs go through 2 other support depts before they get to patient services depts Exam question: Why do we do cost allocation? Mechanics of how step-down / cost allocation works. ....
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