Cost Allocation in Health Care Cost allocation is often the centerpiece of conflict that is resolvedproduct line that is of interest to the plaintiff. This is particularly an issue when a company producesin court cases. The litigation usually involves the dispute over how costs are allocated to a predproduct line that is of interest to the plaintiff. This is particularly an issue when a company produosome products or services for a price-competitive market while other products or services areesduced for a governmental unit on a cost-plus or reimbursement basis.Nursing Care Inc., or NCI, operates both a small nursing home and retirement home. Thre isingle kitchen used to provide meals to both the nursing home and retirement home, meaning labcosts and utilities costs of the kitchen are shared by the two homes. There is also a centralized clesing department that provides the cleaning services for both homes as well as the kitchen. The nursinehome serves only indigent patients who are on Medicaid. The state Department of Health and FamilyServices (DHFS) reimburses NCI at Medicaid-approved cost reimbursement rates. The Medicaidreimbursement rates are based on cost information supplied by NCI. The relevant cost and allocationdata for the most recent year appear in the following table:Annual Operating CostCleaning department$ 90,000$120,000Central kitchenAllocation BaseKitchenNursing Home Retirement HomeSquare feet of space1,0002,0003,000Number of residents6.4Required1. Management of NCI currently allocates the kitchen and cleaning department costs based on thenumber of residents in each home. Determine the amount of service department costs assigned toeach of the homes using this allocation base. Round percentages to two decimal places in yourcalculations.2. DHFS auditors believe the step method of allocation should be used by first assigning cleaning costsbased on square feet and then kitchen costs based on number of residents. Determine the amount ofservice department costs assigned to each of the homes using this allocation method.3. Provide some comments as to why NCI might prefer its selected allocation method over the one sup-ported by DHFS. Are there ethical implications related to the decision?

The Allocation of costs as explained in the question is relevant in competitive markets

Required 1. Management of NCI currently allocates the kitchen and cleaning department costs based on the number of residents in each home. Determine the amount of service department costs assigned to each of the homes using this allocation base. Round percentages to two decimal places in your calculations. 2. DHFS auditors believe the step method of allocation should be used by first assigning cleaning costs based on square feet and then kitchen costs based on number of residents. Determine the amount of service department costs assigned to each of the homes using this allocation method. 3. Provide some comments as to why NCI might prefer its selected allocation method over the one sup- ported by DHFS. Are there ethical implications related to the decision?

Required 1. Management of NCI currently allocates the kitchen and cleaning department costs based on the number of residents in each home. Determine the amount of service department costs assigned to each of the homes using this allocation base. Round percentages to two decimal places in your calculations. 2. DHFS auditors believe the step method of allocation should be used by first assigning cleaning costs based on square feet and then kitchen costs based on number of residents. Determine the amount of service department costs assigned to each of the homes using this allocation method. 3. Provide some comments as to why NCI might prefer its selected allocation method over the one sup- ported by DHFS. Are there ethical implications related to the decision?

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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Jane’s Cookhouse is a popular restaurant located in a scenic setting. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an ABC study. The intern, in consultation with the owner, identified three major activities. The intern then completed the first-stage allocations of costs to the activity cost pools, using data from last month’s operations. The results appear below: Activity Cost Pool Activity Measure Total Cost Total Activity Serving a party of diners Number of parties served $ 16,585 5,350 parties Serving a diner Number of diners served $ 107,010 13,050 diners Serving a drink Number of drinks ordered $ 35,310 10,700 drinks The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries. A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the…
Part 1: Allocate the costs of the 3 service departments using the direct method. Part 2: Allocate the costs of the 3 service departments using the step method, with the order determined by the greater percentage usage. Part 3: Allocate the costs of the 3 service departments using the reciprical method. Part 4:What is one strength and one drawback of each of the methods?
not graded please answer with the A. b. C formatso I know what you're doing Grand Haven is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care. The assisted living division provides residential space, meals, and medical services (MS) to its residents. The current costing system adds the cost of all of these services (space, meals, and MS) and divides by total resident days to get a cost per resident day for each month. Recognizing that MS tends to vary significantly among the residents, Grand Haven's accountant recommended that an ABC system be designed to calculate more accurately the cost of MS provided to residents. She decided that residents should be classified into four categories (A, B, C, D) based on the level of services received, with group A representing the lowest level of service and D representing the highest level of service. Two cost drivers being considered for measuring MS costs are…
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