Please answer questions 1 to 6
data needed is Ill through the process where revenue is the cost / Discussion Questions driver for the allocation rate. You learn that each of the indirect expenses are divided by 1. You first are curious about what the total revenue, facilities expense/total reve- projected net income would be for nue, and general overhead/total revenue. This both the routine care and orthopedics comes up with your cost allocation rate for departments after the move. You know each expense, $335,000/$3,351,000 = $0.10 this move may have a big impact on per dollar of revenue generated for facilities your bonus. Using Table 18-6 and and $167,500/$3,351,000 = $0.05 per dollar Table 18-7 expansion allocation 1, of revenue generated for general overhead. allocate the indirect expenses to both She then teaches the next step which is to the routine care and orthopedic care multiply each cost allocation rate with the departments. Once allocated, you will corresponding departmental revenue, facil- be able to determine the projected net ities expense cost allocation rate times rou- income for both departments. tine care revenue and then repeat again with 2 . orthopedics revenue. Therefore, the facilities Interpreting the results from question 1, do you think the cost allocation expense allocated to the routine care depart- ment is $2,050,000 x $0.10 = $210,000 and the method of using revenue as a cost facilities expense allocated to the orthopedic driver is a "fair" allocation method? department is $650,000 x $0.20 = $105,000. Why or why not? 3. She shows you that this determines how much Again, using Table 18-6 and Table 18-7, of the overall facilities expense should be allo- allocate the indirect expenses based on cated to each department and the total allo- the square-footage after the expan- cation for each department should equal the sion. (Routine Care = 50,000 SqFt and total facilities expense, $210,000 + $130,000 Orthopedics = 25,000 SqFt). = $340,000. You then repeat the process with 4. Now interpret the results from the general overhead expense and can verify question 3. Is this a "fair" allocation your accuracy by reviewing Table 18-4 and on method? Why or why not? Table 18-5. 5. Out of the two cost allocation method which
