Johnson Center Case

Johnson Center is a non-profit organization specializing in the treatment of three types of disorders, anorexia, acute anxiety disorder, and substance abuse.It is a 115 bed facility and is always fully occupied.Patients sleep at the center until they are released.Patients stay for varying lengths of time, although patients in the Anorexia program generally stay the longest.The facility consists of a building with three wings.The Anorexia wing holds 50 beds, the Anxiety wing holds 40 beds and the Substance Abuse wing holds 25 beds.

To be allowed into the non-profit-organization, any person applying for treatment needs to commit to staying at the facility for the full length of the treatment process.Patients can always drop out the treatment program before the process is completed, but patients are then told that they may not reenter that treatment program in the future.There is always a long waiting list of people trying to enter each of the three programs.

The organization has hired nurses, disorder specialists, and physicians.Nurses are each paid $80,000 per year; disorder specialists are each paid, $100,000 per year, and physicians are each paid $150,000 per year.The chart below shows how many people work in each of the treatment centers and the number of beds in each treatment center.The number of beds represents the number of beds in a treatment center that are completely occupied for the entire year.So even if a person on average stays 4 months, so that three patients would have occupied that one bed over the course of the year, it would only count as one bed.

AnorexiaAnxietySubstance Abuse

Nurses363

Disorder specialists 1042

Physicians 725

Beds 504025

Consequently, total labor costs are $4,660,000.

Overhead costs for the facility are broken down into two types.One category is "medicines and medical supplies" and the other is category is "other"."Other" includes items such as rent, laundry, food, electricity, and payments for cleaning services.The overhead costs for medicines and medical supplies are $3,150,000 and other overhead costs are $2,796,000.Medicines and medical supplies overhead costs are allocated to treatment centers on the basis of physician labor costs.Other overhead costs are allocated on the basis of total labor costs.

Johnson Center has been notified that funding to the center will be reduced.Consequently, the center is considering dropping one of its treatment programs, and perhaps renting out some space to another organization.The CEO of Johnson Center will consider various factors when determining which treatment program to drop including which treatment program has the highest cost per bed.The CEO is leaning toward dropping the treatment program that has the highest cost per bed, but is open to discussion on which program should be dropped.Consequently, the CEO has asked you to prepare an analysis that will allow him to see the cost per bed for each program.

For the Johnson_center_case (posted on course hero) Question 1 says: calculate the overhead rate for "medicines and medical supplies" overhead cost pool and the overhead rate for "other" overhead cost pool.

Under comments it says: in the ratio of 7:2:5 (number of physicians) but it doesn't show the actual math calculations. Like how did they get 1,575,000?