Question :
We Care is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 50 percent. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, adding an estimate of the average cost of both general surgery and orthopedic surgery. The clinic's three cost centers and their cost drivers as given.
Cost Center Cost Cost Driver Driver Quantity
Professional salaries $1,500,000 Professional hours 10,000
Patient services and supplies 25,000 Number of patients 500
Building cost 150,000 Square feet 1,500
The two main surgical units and their related data follow.
Service Hours Square Feet* Patients
General surgery 2,500 500 400
Orthopedic surgery 7,500 1,000 100
Required:
1. Evaluate the cost per cost driver for each of the three cost centers.
2. Use the results from part 1 to allocate costs from each of the three cost centers to both the general surgery and the orthopedic surgery units. Evaluate total cost and average cost per patient for both the general surgery and the orthopedic surgery units.