The following information is provided about Memorial Hospital to help answer questions $2-7.$

Departmental

Costs Depreciation Administration Housekeeping Total

Depreciation $$6,000,000$

Administration $$4,000,000$ $$100,000$

Housekeeping $$2,000,000$ $$100,000$ $$100,000$

Nursing Units $$16,000,000$ $$5,000,000$ $$2,500,000$ $$500,000$ $$24,000,000$

Pharmacy $$8,000,000$ $$200,000$ $$500,000$ $$300,000$ $$9,000,000$

Central Supply $$6,000,000$ $$600,000$ $$1,000,000$ $$1,400,000$ $$9,000,000\_\_\_\_\_\_\_$

TOTAL $$42,000,000$ $$6,000,000$ $$4,100,000$ $$2,200,000$ $$42,000,000$

You may assume the above costs are $50\%$ fixed and $50\%$ variable.

Salaries and Wages $$20,000,000$

Benefits $4,000,000$

Supplies, Utilities and Other $10,000,000$

Depreciation $6,000,000$

$$42,000,000$

Area

Cost$/$Charge Ratio

Nursing Units

$0\mathrm{.}5$

Pharmacy

$0\mathrm{.}3$

Central Supply

$0\mathrm{.}8$

Nursing Units

Discharges

Med$/$Surg

$2,200$

Orthopedics

$1,000$

Psychiatry

$1,000$

TOTAL

$4,200$

Average Charges for Orthopedic Patients$/$Discharge

Nursing $4$ days @ $$2,000/$day

Pharmacy $10$ doses @ $$100/$dose

Central Supply $10$ supplies @ $$500/$supply

The management team has looked at the step$-$down allocation and has the following two questions:

a$)$ The nursing director wonders why depreciation costs for the nursing units are so high. Can you explain why this might be the case?

b$)$ The director of central supply has asked you if his allocations are reasonable. What do you think and why?