Surgery Center is an outpatient surgical clinic that wasprofitable for many years, but Medicare...

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Accounting

Surgery Center is an outpatient surgical clinic that wasprofitable for many years, but Medicare has cut its reimbursementsby as much as 30%. As a result, the clinic wants to betterunderstand its costs. It decides to prepare an activity-based costanalysis, including an estimate of the average cost of both generalsurgery and orthopedic surgery. The clinic’s three activity costpools and their cost drivers follow.
Activity Cost Pool Cost Cost Driver Driver Quantity
Professional salaries $ 1,683,000 Professional hours 10,200
Patient services andsupplies 28,520 Number of patients 620
Building cost 159,600 Square feet 1,520

The two main surgical units and their related datafollow.
Service Hours Square Feet* Patients
General surgery 2,600 610 410
Orthopedic surgery 7,600 910 210

* Orthopedic surgery requires more space for patients, supplies,and equipment.

Required:
1. & 2. Compute the cost per cost driver foreach of the three activity cost pools. Use the results to allocatecosts to both the general surgery and the orthopedic surgery units.Compute total cost and average cost per patient for both thegeneral surgery and the orthopedic surgery units.

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3.6 Ratings (398 Votes)

Step: 1 - Cost per each cost driver
Particulars	Calculation		Per unit Cost ($)
1. Professional Salaries per hour	=1683000/10200		165
2. Patient services and supplies/ Patients	=28520/620		46
3. Building Cost/ Sq ft	=159600/1520		105

Step: 2 - Cost of general surgery
Particulars	Requirement	Units	Per unit Cost ($)	Total Cost ($)
Professionals	2600	hrs	165	4,29,000.00
Patient services	410	Patients	46	18,860.00
Building Cost	610	Sq Ft	105	64,050.00
Total Cost				5,11,910.00
Average Cost				1,248.56

Step: 3 - Cost of Orthopedic surgery
Particulars	Requirement	Units	Per unit Cost ($)	Total Cost ($)
Professionals	7600	Hrs	165	12,54,000.00
Patient services	210	Patients	46	9,660.00
Building Cost	910	Sq Ft	105	95,550.00
Total Cost				13,59,210.00
Average Cost				6,472.43

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In: AccountingSurgery Center is an outpatient surgical clinic that wasprofitable for many years, but Medicare has...Surgery Center is an outpatient surgical clinic that wasprofitable for many years, but Medicare has cut its reimbursementsby as much as 30%. As a result, the clinic wants to betterunderstand its costs. It decides to prepare an activity-based costanalysis, including an estimate of the average cost of both generalsurgery and orthopedic surgery. The clinic’s three activity costpools and their cost drivers follow.Activity Cost PoolCostCost DriverDriver QuantityProfessional salaries$1,683,000Professional hours10,200Patient services andsupplies28,520Number of patients620Building cost159,600 Square feet1,520The two main surgical units and their related datafollow.ServiceHoursSquare Feet*PatientsGeneral surgery2,600610410Orthopedic surgery7,600910210* Orthopedic surgery requires more space for patients, supplies,and equipment.Required:1. & 2. Compute the cost per cost driver foreach of the three activity cost pools. Use the results to allocatecosts to both the general surgery and the orthopedic surgery units.Compute total cost and average cost per patient for both thegeneral surgery and the orthopedic surgery units.

Activity Cost Pool	Cost		Cost Driver	Driver Quantity
Professional salaries	$	1,683,000	Professional hours		10,200
Patient services andsupplies		28,520	Number of patients		620
Building cost		159,600	Square feet		1,520

Service	Hours		Square Feet*		Patients
General surgery		2,600		610		410
Orthopedic surgery		7,600		910		210