Louis Clark, the new administrator for the surgical clinic, was trying to figure out how to allocate is 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 of each department, to allocate administration expense based on direct costs, and to allocate laboratory expense based on tests. Using the information in Exhibit 12.11 below, calculate the total indirect costs (utilities, administration, and laboratory) allocated to the Day-Op Suite; Cystoscopy; and Endoscopy.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Louis Clark, the new administrator for the surgical clinic, was trying to figure out how to allocate is 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 of each department, to allocate administration expense based on direct costs, and to allocate laboratory expense based on tests. Using the information in Exhibit 12.11 below, calculate the total indirect costs (utilities, administration, and laboratory) allocated to the Day-Op Suite; Cystoscopy; and Endoscopy.
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Exhibit 12-11 |
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A |
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B |
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C |
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Square Feet |
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Dept. Costs |
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Lab Tests |
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Utilities |
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$400,000 |
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Administration |
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4,000 |
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$700,000 |
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Laboratory |
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2,000 |
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$750,000 |
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Day-Op suite |
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4,000 |
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$2,500,000 |
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6,000 |
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Cystoscopy |
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2,000 |
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$575,000 |
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2,000 |
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Endoscopy |
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1,000 |
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$300,000 |
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1,500 |
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Total |
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13,000 |
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$5,225,000 |
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9,500 |
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