Refer to Problem 8-17. Suppose that the accountant for the practice, Sally Bains, decides to prepare an activity-based budget for Dorian Dermatology Associates. Her interviews with the office manager, receptionist, and medical assistants provided the following information:

a. There are essentially six activities for the medical practice: scheduling appointments, initial patient screening, assisting the doctors, filing insurance, handling disputed insurance claims, and providing facilities.

b. Scheduling appointments is done by the receptionist. It takes about half of her time and requires a special software package. The number of phone calls to the office is the driver for this activity. The cost per unit of driver is $1 per call.

c. The initial screening requires the medical assistant to call each patient from the waiting room to an examining room. The assistant then takes a brief medical history and determines the nature of the complaint. If it is a repeat appointment, the assistant can occasionally handle it. The driver is the number of patients seen, and the cost per unit of driver is $7.25.

d. The activity of assisting doctors is performed by the medical assistants. After the initial screening, the doctor examines the patient and determines the diagnosis and course of treatment. Occasionally, the treatment requires assistance with a procedure (e.g., minor surgery). The driver for the activity is the number of procedures, and the cost per unit of driver is $7.25.

e. Filing insurance claims is handled by the office manager and receptionist. This takes about 60 percent of the office manager’s time and the remaining half of the receptionist’s time. Office supplies and computer programs are also required. The driver is the number of claims filed, and the cost is $9.27 per claim filed.

f. Sometimes, insurance claims are disputed by the insurance companies. When this occurs, considerably more time and effort are required by the office manager. She also needs help from the medical assistants to check for errors in charts and clarify diagnoses. Supplies and office machinery (fax machine and long distance calls) are also required. The driver is the number of disputed claims, and the cost is $123.50 per disputed claim.

g. The final activity is providing facilities. These costs total $8,550 per month and include rent, noncomputer depreciation, utilities, janitorial services, accounting and financial services, insurance, and other expenses. For the month of May, the following amounts of each driver are estimated: 875 phone calls for appointments, 800 patients to be seen, 400 procedures to be performed, 650 insurance claims to be filed, and 40 disputed claims.

Required:

1. Prepare an activity-based overhead budget for the month of May.

2. Based on the given information, what managerial advice would you give to Dorian Dermatology Associates?