Drs. Steven Wolf and Robert Brown are partners in an orthopedic clinic located in suburban Detroit. Recently, the clinic acquired an X-ray machine. The two physicians have approached you for help in equitably allocating the machine’s cost between themselves. They provide the following data:

They also tell you that their actual variable cost of $10,720 was $1,120 higher than their expected cost of $9,600, or $20 per film. The expected fixed cost (machine, amortizing room modification, salary for technician, and so on) was $7,500 for the month. Actual cost was $8,000.

Required:
a. Determine the cost allocated to each physician under the following schemes:
• Total actual cost allocated in proportion to actual use.
• Total expected cost (per flexible budget) allocated in proportion to budgeted use.
• Expected fixed cost allocated in proportion to expected use, expected variable cost allocated in proportion to actual use.
b. Which of the above allocations do you think is most equitable?Why?

Transcribed Image Text:

Dr. Brown Dr. Wolf Expected use per mnth 300 exposures 200 exposures Actual use for March 240 films 240 films