Reference no: EM132205157

1. What is the basic concept of the cost – to- charge ratio method of estimating costs? Give an example

2. What are the four major concerns with using the cost – to- charge ratio method?

3. How did the step down method of cost allocation acquire its name?

4. What is the difference between a cost object’s direct cost and its fully allocated cost? Give an example

5. Referring to exhibit 12.10, suppose that instead of 2,000,5,000, and 3,000 visits for an initial, regular, and intensive visit, respectively, the number of visits was 3,000, 5,000 and 2,000. Assume that the costs associated with intake, new visits, medical records, and billing do not change in number or distribution.

Would there be a change in the overhead cost per visit of an initial visits using either the conventional or ABC method?

Would there be a change in the total overhead cost of initial visits using either the conventional or ABC method?

6. Louis Clark, the new administrator for the surgical clinic, was trying to figure out how to allocate his indirect expenses. His staff were complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities expense based on square footage for each department, to allocate administration expenses based on direct costs, and to allocate laboratory expense based on tests. What would the results be?

Carol West, the nurse manager of the cystoscopy suite, was given approval to add more space to her current area by converting 500 square feet of administrative space into another cystoscopy bay. What will her new fully allocated expenses be? Assume that there are no new additional costs incurred by adding the 500 square fee?

Bobbie Jones, the manager of the endoscopy suite, is concerned about adding more space. She contends that if the cystoscopy and endoscopy units were combined fewer staff would be needed, and direct costs could be reduced by 50,000 ($25,000 in each unit). She also feels that the day – op area is underutilized, and that 500 square could be used by a combined unit when excess capacity was needed. Assuming that the 500 square feet were to be allocated equally between the endoscopy and cystoscopy suits in addition to the renovation as described in part B, what would the total allocated costs for each of these two services be under this scenario?