Reference no: EM132957045

Question - You run a clinic with 2 revenue generating departments: Imaging and Laboratory. In the following table you are provided with each department's revenues, direct costs and square footage occupied.

Revenues Direct Costs Square Feet

Imaging $500,000 $250,000 2,500

Laboratory $250,000 $125,000 1,000

The clinic also incurs some indirect costs (overhead) that must be shared between the two departments. These indirect (overhead) costs are given in the next table.

Costs (Overhead)

General Administration and Billing $40,000

Maintenance $60,000

a. Suppose that the "General Administration and Billing" overhead costs are to be allocated based on each department's revenues. What is the allocation rate? Interpret your result.

b. Suppose that the "Maintenance" overhead costs are to be allocated based on square footage. What is the allocation rate? Interpret your result.

c. How much of the General Administration overhead costs would be allocated to the Imaging department and how much would be allocated to Laboratory one?

d. How much of the Maintenance overhead costs would be allocated to the Imaging department and how much would be allocated to the Laboratory one?

e. What is the total profit for the Imaging department? What about the Laboratory department?