Exercise 4-15 Activity-based costing LO P3

Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 40%. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, including an estimate of the average cost of both general surgery and orthopedic surgery. The clinics three activity cost pools and their cost drivers follow.

Activity Cost Pool	Cost		Cost Driver	Driver Quantity
Professional salaries	$	2,419,000	Professional hours		11,800
Patient services and supplies		42,120	Number of patients		780
Building cost		243,600	Square feet		1,680

The two main surgical units and their related data follow.

Service	Hours			Square Feet*			Patients
General surgery		3,400			690			490
Orthopedic surgery		8,400			990			290

* Orthopedic surgery requires more space for patients, supplies, and equipment. Required: 1. & 2. Compute the cost per cost driver for each of the three activity cost pools. Use the results to allocate costs to both the general surgery and the orthopedic surgery units. Compute total cost and average cost per patient for both the general surgery and the orthopedic surgery units.

						General Surgery		Orthopedic Surgery
Activity	Overhead Cost	Activity Drivers		Activity Rate		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Professional salaries			Professional hours
Patient services and supplies			Number of patients
Building cost			Square feet