Cost allocation in centres, alternative allocation criteria. (15-20 minutes) Brian McGarrigle went to Les Arcs for his annual winter vacation. Unfortunately, he suffered a severe break in his ankle while skiing and had to spend 2 days at the Hopital de Grasse. McGarrigle’s insurance company received a EUR 4,800 bill for his 2-day stay. One item that caught McGarrigle’s eye was an EUR 11.52 charge for a roll of cotton.
McGarrigle was a salesman for Boots and knew that the cost to the centre of the roll of cotton would be in the EUR 2.20 to EUR 3.00 range. He asked for a breakdown of how the EUR 11.52 charge was derived. The accounting office of the centre sent him the following information:

REQUIRED 1. Calculate the overhead rate Hopital de Grasse charged on the cotton roll.
2. What criteria might Hopital de Grasse use to justify allocation of each of the ovethead items b to i in the preceding list? Examine each item separately and use the allocation criteria listed in Exhibit  5-2 in your answer.

3. What should McGarrigle do about the EUR 11.52 charge for the cotton roll? lop4

Transcribed Image Text:

Invoiced cost of cotton roll EUR 2.40 0.60 0.70 1.60 b. Processing of paperwork for purchase c. Supplies room management fee d. Operating-room and patient-room handling charge