Shenandoah Hills Clinic is located in a small rural town and provides services for residents from three neighboring small towns, as well as many farmers in the area. Part of the clinic’s cost is covered by funding from the county. The clinic director has developed the following activity-based budget for first-quarter indirect costs.

REQUIRED
A. What is the total ABC allocation budgeted for Preventative Health for the first quarter?
B. What is the total ABC allocation budgeted for Medical Problems for the first quarter?
C. The clinic director is concerned about funding for the first quarter. She expects funding from the county to be cut by 2%. She has read about kaizen budgeting and would like to set some targets for cost reduction. Assuming that the number of activities remains about the same as the budget and that costs will be reduced by 2%, develop new budgeted cost allocation rates.
D. Explain how the use of activity-based budgeting might help the clinic’s managers respond to a decrease in funding.
E. Identify several business risks and other factors that might influence the clinic’s ability to achieve targeted costreductions.

Transcribed Image Text:

Budgeted Cost Allocation Rate $30 $6 $12 25% Budgeted Usage Preventative Health 80 hours 200 60 $3,000 Medical Problems 400 hours 1,000 visits 168 hours $15,000 Activity Reception and triage Medical records Maintenance Purchasing Cost Driver Hours of service Number of visits Hours spent Cost of supplies