1. The foundation of your project is to apply three different allocation methods (direct, step-down, double apportionment) to the situation at a large group practice. The purpose is to give you some feel for how much variation in final allocation amounts is due to methodological differences.
2. Scenario – You are CFO of the Maple Street Hospital. You have been asked to send a report to the Board of Directors regarding the best method to allocate non-direct costs to the Medical Services, Obstetrics and Emergency departments. Most of the people on the board are not financial people. The report needs to make sure they understand all the concepts of allocation.
3. Your report is to be in the form of a paper. You should be concise and to the point. Your paper should have a minimum of 5 pages including title and reference page. The maximum is 8 pages. You will be graded on APA format, content, and grammar. You can include table, graphs and spreadsheet within the report or as addendums. You will be looking at pre-tax profit for each department and for the whole. In the Doc Sharing area you will find the following reference for writing a report of this nature:
b. Writing a good report
c. Writing conclusions
d. Writing Project Reports 2004a.pdf
4. Your paper should include:
a. Explain why allocation methods are used.
b. Briefly describe the differences in the three allocation methods discussed in the case. (Hint: Don’t discuss the mathematics of the schemes, but rather how they differ conceptually.)
c. Which allocation method is best?
d. What are the allocations to each patient services department, and resulting profitability, for each allocation method?
e. What does the analysis indicate about profitability of each patient services department with or without allocation?
f. What is your recommendation regarding the appropriate cost allocation method for the practice?
5. Much of the busywork has been eliminated with the use of a premade spreadsheet, enabling you to spend more time on interpretation and evaluation. The spreadsheet information is on the next page.