Discussion:
Case
Part B
Now that you have calculated the costs associated with each profit center and each profit center's net income, you began to question the cost driver for Financial Services. As you reflected more deeply on the activities in that support department, you realized that most activities revolved around the issuance of invoices to patients. You asked for data on invoices generated by profit center and received the schedule reflected in Exhibit 6 below.
Utilization of Financial Services
Patient Services Department
Number of Bills Required
Routine Care
3,200
Laboratory
60,300
Radiology
36,500
Total bills
100,000
Re-calculate costs and net profit for each profit center based on this assumption. Did the most profitable profit center change? Does one of the profit centers now operate at a loss? If you were the Manager of the Imaging profit center and were incentivized based on profit, which of the two costing approaches would you prefer? Which do you prefer as Manager of the Primary Patient Care? Which of the approaches is the best approach and why?