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allocate his indirect expenses. His staff was complaining that the current method of tak David Jones, the new administrator for a surgical clinic, was trying to determine how ta percentage of revenues was unfair. He decided to try to allocate utilities based on squ footage of each denartment adminigtunti atc and lahoratory base

allocate his indirect expenses. His staff was complaining that the current method of tak David Jones, the new administrator for a surgical clinic, was trying to determine how ta percentage of revenues was unfair. He decided to try to allocate utilities based on squ footage of each denartment adminigtunti atc and lahoratory base

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Scenario: Indirect Expense Allocation in a Surgical Clinic** 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. | | 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 | $300,000 | 500 | | **Endoscopy** | 1,500 | $600,000 | 500 | | **Total** | 10,000 | $3,375,000 | 5,000 | **Question:** What are the endoscopy department's total expenses? **Answer:** $469,678 In this scenario, David Jones attempts to create a fair allocation method for indirect expenses in a surgical clinic by considering different factors such as square footage, direct expenses, and lab tests. The table provides an overview of the expenses and metrics used for allocation across various departments, ultimately leading to a calculated total for the endoscopy department.
Transcribed Image Text:**Scenario: Indirect Expense Allocation in a Surgical Clinic** 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. | | 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 | $300,000 | 500 | | **Endoscopy** | 1,500 | $600,000 | 500 | | **Total** | 10,000 | $3,375,000 | 5,000 | **Question:** What are the endoscopy department's total expenses? **Answer:** $469,678 In this scenario, David Jones attempts to create a fair allocation method for indirect expenses in a surgical clinic by considering different factors such as square footage, direct expenses, and lab tests. The table provides an overview of the expenses and metrics used for allocation across various departments, ultimately leading to a calculated total for the endoscopy department.
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