Case4-Stephanie Ramirez - 2nd Submission.xls - CASE 4 Student Version EAGAN FAMILY PRACTICE Cost Allocation Methods This case illustrates the use of two

Case4-Stephanie Ramirez - 2nd Submission.xls - CASE 4...

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CASE 4 Student Version 8/13/13 EAGAN FAMILY PRACTICE Cost Allocation Methods This case illustrates the use of two cost allocation methods: direct and step-down INPUT DATA: Revenues: Adult Medicine $ 12,000,000 Obstetrics 6,000,000 Pediatrics 2,000,000 Total revenues $ 20,000,000 Direct Costs: Patient Services Departments: Adult Medicine $ 6,000,000 Obstetrics 3,600,000 Pediatrics 1,200,000 Subtotal $ 10,800,000 Support Departments: Administration 1,000,000 Facilities 4,400,000 Finance 1,800,000 Subtotal $ 7,200,000 Total costs $ 18,000,000 Pretax Profit $ 2,000,000 Key Statistics/Data Square Footage Cases Patient Days Administration 10,000 Facilities 25,000 Finance 15,000 Adult Medicine 600,000 10,200 45,900 Obstetrics 400,000 4,500 10,800
Pediatrics 200,000 2,000 6,000 Total 1,250,000 16,700 62,700 COMPUTATION OF ALLOCATED COSTS: Direct Method Input Using Cases: Department Cost Driver Allocation Rate Administration $ 1,000,000 Cases 16,700 $ 59.88 Facilities $ 4,400,000 Square Footage 1,200,000 $ 3.67 Finance $ 1,800,000 Direct Cost $ 10,800,000 $ 0.17 Total Overhead Cost $ 7,200,000 Direct Allocation Using Cases: Adult Medicine Obstetrics Pediatrics Total Administration 610,778 269,461 119,760 1,000,000 Facilities 2,200,000 1,466,667 733,333 4,400,000 Finance 1,000,000 600,000 200,000 1,800,000 Total Allocated Costs 3,810,778 2,336,128 1,053,094 7,200,000 Step Down Allocation Using Cases: Step 1: Allocate Facilities cost to all remaining departments. Cost Driver Allocation Rate Facilities $ 4,400,000 Square Footage 1,225,000 $ 3.59 Finance 53,878 Administration 35,918 Adult Medicine 2,155,102 Obstetrics 1,436,735 Pediatrics 718,367 Total Allocated Costs 4,400,000 Cost Pool (Total Costs) Amount of Cost Driver Cost Pool (Total Costs) Amount of Cost Driver
Step 2: Allocate Finance Cost on the basis of Total Direct Cost First you must compute the Total Finance Cost: Direct Finance Cost 1,800,000

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