location Practices 377 Aurora Medical Center Aurora Medical Center (AMC), located outside Phoenix, has an inpatient hospital and outpatient clinic. Because it is located in a retirement area, a substantial fraction of its patients are elderly, and hence their medical insurance is provided through the Medicare program of the federal government. Medicare outpatient clinic care is reimbursed by the federal government at cost. Each clinic with Medicare outpatients submits a reimbursement form to Medicare reporting the costs of treating these patients. Medicare inpatient reimbursement is based on predetermined rates depending on the diag- nosis. For example, all Medicare-paid hip replacements in Phoenix are reimbursed at $14,800 per patient, regardless of the hospital's cost. AMC has two administrative departments that provide services to both the hospital and the clinic: accounting and information management (IM). The accompanying tables summarize the ser- vice levels provided by these two departments: Administrative Departments Accounting IM Total cost $3,800,000 $4,800,000 Allocation base Number of transactions Disk space (gigabytes) Service Levels Transactions Gigabytes Accounting 8 IM Hospital Clinic Total 40,000 1,100,000 600,000 1,740,000 24 792 Accounting department costs are distributed to users based on the number of transactions posted to the general ledger generated by that user. IM costs are distributed to users based on the gigabytes of storage dedicated to the user. Medicare guidelines allow these allocation bases to be used. Medi- care also provides some discretion to hospitals in the methods used to allocate costs, as long as they are reasonable and generally accepted. Required: a. Design a report for assigning the accounting and IM costs to the hospital and clinic. How much of the costs of accounting and IM should be allocated to inpatients and outpatients? b. Justify your design in part (a). Explain why AMC should follow your suggestions. City Broadcasting Grove City Broadcasting owns and operates a radio station and a television station in Grove City. Both stations are located in the same building and are operated as separate profit centers with sepa-