Question

Keene Hospital Pharmacy fills three types of prescriptions. Prescription X requires refrigeration to maintain the drug's efficacy. Prescription Y has potentially fatal interactions with other drugs and therefore requires careful review by a pharmacist. Prescription Z is a basic, common drug that presents little risk to the patient. Prescription X is a brand-name drug still on patent, and therefore, the charge for the drug is high relative to its cost. Consider the following data for the hospital pharmacy: Prescription Prescription Y Prescription z 1,200 60 240 Annual volume (prescriptions) Annual costs: Direct costs Overhead indirect costs) Annual charges $9,240 $58,800 $38,400 $42,504 $88,200 $61,440 Total overhead (indirect costs) for the pharmacy=$153 716 a. Using the cost-to-charges ratio (CCR) method, determine the overhead that would be allocated to each type of prescription, X, Y, and Z. Hint: Complete the following table: Allocated to Prescription X Allocated to Prescription Y Allocated to Prescription 2 Total overhead

Answer 1

Total charges for all prescriptions = X+ Y+Z

                                  = 42504 + 88200 + 61440

                                  = 192144

Cost to charge ratio = total overhead /total charges

                              = 153716 /192144

                              = .800004   (rounded to .80)

Total overhead	X	Y	Z
153715	42504*.80= 34003.2 (rounded to 34003)	88200*.80 = 70560	61440*.80= 49152

**Difference of $ 1 is due to decimal place in ratio .