Complete problem 11a concerning cost allocation on page 573 of Financial Management of Health Care Organizations (linked in Resources). Show all of your calculations in an Excel spreadsheet. Post your spreadsheet and ask related questions or offer comments about it.

Cost allocation. Use the information in Exhibit 12.11 to answer these questions

Louis Clark, the new administrator for the surgical clinic, was trying to figure out how to allocate his indirect expenses. His staff were complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities expense based on square footage for each department, to allocate administration expense based on direct costs, and to allocate laboratory expense based on tests. What would the results be?

Exhibit 12.11 Basic Statistics For Cost Allocation in a Surgery Clinic

A B C

Square Feet Dept Costs Lab Tests

Utilities $400,000

Administration 4,000 $700,000

Laboratory 2,000 $750,000

Day-op suite 4,000 $2,500,000 6,000

Cystoscopy 2,000 $575,000 2,000

Endoscopy 1,000 $300,000 1,500

Total 13,000 $5,225,000 9,500