Question

PART II: NEW SCENARIO - GHA 4 To complete PART II, you will need to follow the same process as Part I. In this scenario, the direct costs have remained the same, however the indirect costs and allocation basis have been changed. Here is the information that you will need to complete Part II. DIRECT COSTS The direct costs for each department are easily identifiable, because they are the costs that are directly attributable to the department. The direct costs are as follows: Physical Therapy (PT) 410,000 Occupational Therapy (OT) 190,000 Speech Therapy (ST) 120,000 Total Direct Costs 720,000 INDIRECT COSTS The indirect costs will need to be allocated to Physical Therapy (PT), Occupational Therapy (OT), and Speech Therapy (ST). The indirect costs in this scenario have been identified as: (1) Clerical Salaries, (2) Administrative Salaries, and (3) Computer Services. The total indirect costs that need to be allocated to PT, OT, and ST are as follows: Clerical Salaries 56,000 Administrative Salaries 55,000 Computer Services 80,000 Total Indirect Costs 191.000 Each type of indirect cost will need to be allocated to each department based on an allocation basis that is appropriate for the particular type of cost. Clerical Salaries will be allocated based on Visit Volume. Administrative Salaries will be allocated based on the Proportion of Direct Costs Computer Services will be allocated based on the Number of Computers in Service. Computers in Service 10 Physical Therapy (PT) Occupational Therapy (OT) Speech Therapy (ST) Total Visit Volume 9,600 4,000 2.400 16,000 16 Step 1: Set-up a Table of Direct and Indirect Costs Direct Cost Indirect Cost Total Physical Therapy (PT) Occupational Therapy (OT) Speech Therapy (ST) Totals

Answer 1

STEP>1      TOTAL COST

	Direct cost	Indirect cost	Total
Physical Therapy	410000	114919	524919
Occupational Therapy	190000	43514	233514
Speech Therapy	120000	32567	152567
Total	720000	191000	911000

STEP>2

Clerical salaries

Clerical salaries will be allocated based on visit volume.

	Visit volume	Percentage
Physical Therapy	9600	60%
Occupational Therapy	4000	25%
Speech Therapy	2400	15%
Total	16000	100

Allocation of cost for clerical salaries:

Physical Therapy           -33600           

Occupational Therapy -14000

Speech Therapy              - 8400

Total                              - 56000  

Administrative Salaries It will be allocated on the basis of propotion of direct cost

	Direct cost	Propotion
Physical Therapy	410000	56.94%
Occupational Salaries	190000	26.38%
Speech Therapy	120000	16.67%
Total	720000	100

Total Administrative salaries:

Physical Therapy         -31319  

Occupational Salaries -14514  

Speech Therapy            -9167

Total                              -55000

Computer Services

It will be allocated on the basis of number of computers in service.

	Computers in service	Propotion
Physical Therapy	10	62.5%
Occupational Salaries	3	18.75%
Speech Therapy	3	18.75%
Total	16	100

Total indirect cost for computer services

Physical Therapy           -50000

Occupational Therapy -15000

Speech Therapy            -15000

Total                               -80000

STEP >3

     TOTAL INDIRECT COST

	Clerical salaries	Administrative salaries	Computer services	Total indirect cost
Physical Therapy	33600	31319	50000	114919
Occupational Therapy	14000	14514	15000	43514
Speech Therapy	8400	9167	15000	32567

STEP> 4     TOTAL COST

	Direct cost	Indirect cost	Total
Physical Therapy	410000	114919	524919
Occupational Therapy	190000	43514	233514
Speech Therapy	120000	32567	152567
Total	720000	191000	911000