I am considering expanding the hospital I direct in order to increase room for routine care services. In order to expand, I have decided to move the orthopedics department elsewhere, freeing up space for the routine care department to expand. Needing to find a new place for orthopedics, I decide to keep the department on the same campus as the hospital in case inpatient care was needed. The decision is to build a new building on vacant land on the campus. Using expansion Revenue Method Expansion and Square Foot Expansion Allocations, I calculated the total indirect expenses to both the routine care and orthopedic care departments. Once allocated, I calculated the projected net income for each department, shown below.

Total Indirect Expenses Without Allocation:

Routine Care $307,500

Ortho Care $195,150

Total Indirect Expenses After Allocation: Revenue Method, Allocation 1

Routine Care $450,000

Ortho Care $263,000

Total Indirect Expenses After Allocation: Square Foot Method, Allocation 2

Routine Care $476,000

Ortho Care $238,000

Department Net Income Before Allocation

Routine Care $86,500

Ortho Care $1,850

Department Net Income After Allocation: Revenue Method

Routine Care $129,500

Ortho Care $2,300

Department Net Income After Allocation: Square Foot Method

Routine Care $104,000

Ortho Care $23,200

Interpreting the results from the calculations above, do you think the cost allocation method of using revenue as a cost driver is a fair allocation method? Why or why not?