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Is it fair for the Dialysis Center to suffer in profitability, and hence for the department head to possibly lose his bonus, just because the
- Is it fair for the Dialysis Center to suffer in profitability, and hence for the department head to possibly lose his bonus, just because the Outpatient Clinic needs additional space? Provide justification for your position.
- In the past, the medical center aggregated all facility costs and then allocated the total amount on the basis of square footage. This methodology assigned an average cost rate to each patient service department, regardless of whether its space is new or old, prime or poor. The proposed allocation for the Dialysis Center, on the other hand, requires it to bear the true facility costs of its new space.
- What are the advantages and disadvantages of the new methodology?
- Do you support the new allocation scheme? Provide justification for your position.
- If the new allocation method for facility costs is implemented, what should be the facility allocation to the Dialysis Center in 20 years, when the loan (which is the basis for the higher cost allocation) has been paid off and there are no longer any actual facility costs? Provide justification for your position.
- Explain how the revenue from medical (pharmacy) supplies is currently handled for profit and loss reporting purposes.
- Is there a problem with the current system?
- Is there a better way of reporting this revenue? Explain.
- When all issues related to the decision are considered, what is your recommendation regarding the final allocation amounts? Put your recommendation in the Excel spreadsheet provided for this case. Provide justification for your recommendation.
Model with Questions, Student Version This case focuses on cost allocation concepts, specifically the fairness and incentives created by a new allocation system applied to a department that is moving to a new, stand-alone facility. The primary thrust of the case is qualitative rather than quantitative, but this model can be used to compare results under alternative allocation schemes. The model consists of a complete base case analysis--no changes need to be made to the existing MODEL-GENERATED DATA section. However, values in the INPUT DATA section of the student spreadsheet have been replaced by zeros. Students must select appropriate input values and enter them into the cells with values colored red. After this is done, any error cells will be corrected and the base case solution will appear. The KEY OUTPUT section includes the most important output from the MODEL-GENERATED DATA section.
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