You first are curious about what the projected net income would be for both the routine care
Question:
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You first are curious about what the projected net income would be for both the routine care and orthopedics departments after the move. You know this move may have a big impact on your bonus. Using Table 18-6 and Table 18-7 expansion allocation 1, allocate the indirect expenses to both the routine care and orthopedic care departments. Once allocated, you will be able to determine the projected net income for both departments.
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Interpreting the results from question 1, do you think the cost allocation method of using revenue as a cost driver is a fair allocation method? Why or why not?
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Again, using Table 18-6 and Table 18-7, allocate the indirect expenses based on the square-footage after the expansion. (Routine Care = 50,000 SqFt and Orthopedics = 25,000 SqFt).
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Now interpret the results from question 3. Is this a fair allocation method? Why or why not?