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14 May, 15:48

David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below to answer the question.

Square Footage Direct Expenses Lab Tests

Utilities 200,000

Administration 2,000 500,000

Laboratory 2,000 625,000

Day-op Suite 3,000 1,400,000 4,000

Cystoscopy 1,500 350,000 500

Endoscopy 1,500 300,000 500

Total 10,000 3,375,000 5,000

Based on the scenario above, what are the Cystoscopy Department's total expenses?

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Answers (1)
  1. 14 May, 15:51
    0
    The Cystoscopy Department's total expenses are $380,500

    Explanation:

    According to the given data we have the following:

    For Cystoscopy Department,

    (A) The Direct Expenses are $350,000

    (B) Lab Tests are $500

    We should need to calculate the allocation of Utilities for 1500 square feet and then add all these 3 costs.

    Total Square feet is 10,000 and Total Expenses for Utilities is $200,000

    So per Square foot expense for Utilities = $200,000 / 10,000 = 20 per square foot

    (C) So, for Utilities having 1,500 square foot space, the cost allocated = 1,500 X 20 = $30,000

    Adding all (A) + (B) + (C), the total expenses for Cystoscopy Department are

    $350,000 + $500 + $30,000 = $380,500

    The Cystoscopy Department's total expenses are $380,500
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