Question

HUNDIR Hip Save & Exit Check Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 50%. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, including an estimate of the average cost of both general surgery and orthopedic surgery. The clinic's three activity cost pools and their cost drivers follow. Driver Quantity 8,000 Activity Cost Pool Professional salaries Patient services and supplies Building cost Cost Cost Driver $880,000 Professional hours 14,000 Number of patients 65,000 Square feet 400 1.300 The two main surgical units and their related data follow. Patients Service General Surgery Hours Square Feet 1,500 500 6,500 800 General Surgeryory 300 2,500 600 200 100 * Orthopedic surgery requires more space for patients, supplies, and equipment. Required: 1. & 2. Compute the cost per cost driver for each of the three activity cost pools. Use the results to allocate costs to both the general surgery and the orthopedic surgery units. Compute total cost and average cost per patient for both the general surgery and the orthopedic surgery units.

Answer 1

						General surgery		Orthopedic Surgery
Activity	Overhead Cost	Activity Drivers		Activity Rate		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Professional salaries	880000	8000	Professional hours	110	per professional hour	1500	165000	6500	715000
Patient services and supplies	14000	400	Number of patients	35	per patient	300	10500	100	3500
Building cost	65000	1300	Square feet	50	per square foot	500	25000	800	40000
					Total overhead cost		200500		758500
					Number of patients		300		100
					Average cost per patient		668		7585