Answer :
Sure, let's go through the allocation of costs step-by-step using the given information and the direct method of cost allocation.
We'll allocate the costs for Housekeeping, Financial Services, and Administration Departments to the two patient services departments (Medicine and Surgery).
Step 1: Allocate Housekeeping Costs
The cost driver for Housekeeping is square feet. We will allocate the Housekeeping costs based on the proportion of total square feet used by each patient services department.
1. Total square feet of the entire clinic:
[tex]\[ 3000 + 5000 + 2000 + 53000 + 40000 = 103000 \, \text{sq ft} \][/tex]
2. Proportion of square feet used by Medicine and Surgery:
[tex]\[ \text{Medicine:} \quad \frac{53000}{103000} \approx 0.5146 \][/tex]
[tex]\[ \text{Surgery:} \quad \frac{40000}{103000} \approx 0.3883 \][/tex]
3. Allocation of Housekeeping costs ([tex]$200,000): \[ \text{Medicine:} \quad 200000 \times 0.5146 \approx \$[/tex]102,920 \]
[tex]\[ \text{Surgery:} \quad 200000 \times 0.3883 \approx \$77,660 \][/tex]
Step 2: Allocate Administration Costs
The cost driver for Administration is the number of employees. We will allocate the Administration costs based on the proportion of total employees in each patient services department.
1. Total number of employees in the entire clinic:
[tex]\[ 250 + 500 + 100 + 2600 + 2300 = 5750 \][/tex]
2. Proportion of employees in Medicine and Surgery:
[tex]\[ \text{Medicine:} \quad \frac{2600}{5750} \approx 0.4522 \][/tex]
[tex]\[ \text{Surgery:} \quad \frac{2300}{5750} \approx 0.4000 \][/tex]
3. Allocation of Administration costs ([tex]$400,000): \[ \text{Medicine:} \quad 400000 \times 0.4522 \approx \$[/tex]180,880 \]
[tex]\[ \text{Surgery:} \quad 400000 \times 0.4000 \approx \$160,000 \][/tex]
Step 3: Allocate Financial Services Costs
The cost driver for Financial Services is also the number of employees. We will allocate the Financial Services costs based on the proportion of total employees in each patient services department, similar to the Administration costs.
1. Proportion of employees in Medicine and Surgery is identical:
[tex]\[ \text{Medicine:} \quad \frac{2600}{5750} \approx 0.4522 \][/tex]
[tex]\[ \text{Surgery:} \quad \frac{2300}{5750} \approx 0.4000 \][/tex]
2. Allocation of Financial Services costs ([tex]$300,000): \[ \text{Medicine:} \quad 300000 \times 0.4522 \approx \$[/tex]135,660 \]
[tex]\[ \text{Surgery:} \quad 300000 \times 0.4000 \approx \$120,000 \][/tex]
Step 4: Calculate Total Allocated Costs for Each Department
1. Total allocation to Medicine:
[tex]\[ 102,920 \, (\text{Housekeeping}) + 180,880 \, (\text{Administration}) + 135,660 \, (\text{Financial Services}) = \$419,460 \][/tex]
2. Total allocation to Surgery:
[tex]\[ 77,660 \, (\text{Housekeeping}) + 160,000 \, (\text{Administration}) + 120,000 \, (\text{Financial Services}) = \$357,660 \][/tex]
Thus, the total allocated costs are approximately:
- Medicine: \[tex]$419,460 - Surgery: \$[/tex]357,660
We'll allocate the costs for Housekeeping, Financial Services, and Administration Departments to the two patient services departments (Medicine and Surgery).
Step 1: Allocate Housekeeping Costs
The cost driver for Housekeeping is square feet. We will allocate the Housekeeping costs based on the proportion of total square feet used by each patient services department.
1. Total square feet of the entire clinic:
[tex]\[ 3000 + 5000 + 2000 + 53000 + 40000 = 103000 \, \text{sq ft} \][/tex]
2. Proportion of square feet used by Medicine and Surgery:
[tex]\[ \text{Medicine:} \quad \frac{53000}{103000} \approx 0.5146 \][/tex]
[tex]\[ \text{Surgery:} \quad \frac{40000}{103000} \approx 0.3883 \][/tex]
3. Allocation of Housekeeping costs ([tex]$200,000): \[ \text{Medicine:} \quad 200000 \times 0.5146 \approx \$[/tex]102,920 \]
[tex]\[ \text{Surgery:} \quad 200000 \times 0.3883 \approx \$77,660 \][/tex]
Step 2: Allocate Administration Costs
The cost driver for Administration is the number of employees. We will allocate the Administration costs based on the proportion of total employees in each patient services department.
1. Total number of employees in the entire clinic:
[tex]\[ 250 + 500 + 100 + 2600 + 2300 = 5750 \][/tex]
2. Proportion of employees in Medicine and Surgery:
[tex]\[ \text{Medicine:} \quad \frac{2600}{5750} \approx 0.4522 \][/tex]
[tex]\[ \text{Surgery:} \quad \frac{2300}{5750} \approx 0.4000 \][/tex]
3. Allocation of Administration costs ([tex]$400,000): \[ \text{Medicine:} \quad 400000 \times 0.4522 \approx \$[/tex]180,880 \]
[tex]\[ \text{Surgery:} \quad 400000 \times 0.4000 \approx \$160,000 \][/tex]
Step 3: Allocate Financial Services Costs
The cost driver for Financial Services is also the number of employees. We will allocate the Financial Services costs based on the proportion of total employees in each patient services department, similar to the Administration costs.
1. Proportion of employees in Medicine and Surgery is identical:
[tex]\[ \text{Medicine:} \quad \frac{2600}{5750} \approx 0.4522 \][/tex]
[tex]\[ \text{Surgery:} \quad \frac{2300}{5750} \approx 0.4000 \][/tex]
2. Allocation of Financial Services costs ([tex]$300,000): \[ \text{Medicine:} \quad 300000 \times 0.4522 \approx \$[/tex]135,660 \]
[tex]\[ \text{Surgery:} \quad 300000 \times 0.4000 \approx \$120,000 \][/tex]
Step 4: Calculate Total Allocated Costs for Each Department
1. Total allocation to Medicine:
[tex]\[ 102,920 \, (\text{Housekeeping}) + 180,880 \, (\text{Administration}) + 135,660 \, (\text{Financial Services}) = \$419,460 \][/tex]
2. Total allocation to Surgery:
[tex]\[ 77,660 \, (\text{Housekeeping}) + 160,000 \, (\text{Administration}) + 120,000 \, (\text{Financial Services}) = \$357,660 \][/tex]
Thus, the total allocated costs are approximately:
- Medicine: \[tex]$419,460 - Surgery: \$[/tex]357,660
