Reference no: EM132603169

A medical group is considering building a major health centre, hospital and allied health practices in Adelaide. The proposed complex will make significant impacts on the local economy. The following information has been provided regarding the three segments:

                                  Health Centre                Hospital                         Allied Health

Revenues                        $15,425,000                 $7,256,000                $22,340,000

Direct costs                       $7,712,500                   $2,902,400               $7,819,000

Margin                                $7,712,500                  $4,353,600                $14,521,000

Floor Space (m2)                    5432                            2486                         7946

Number of employees                    50                          150                              200

Senior management feels that there are three options which could be chosen to allocate the estimated fixed costs for the first year of operations (a total of $14,550,000): (i) square metres, (ii) percentage of direct costs, or (iii) number of employees.

Required:

Question a. Allocate the indirect costs to the three divisions using each of the three cost allocation bases suggested by senior management.

Question b. For the health centre only, calculate the operating profit (in dollars) after each allocation.