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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Cost Allocation in Health Care Cost allocation is often the centerpiece of conflict that is resolved
product line that is of interest to the plaintiff. This is particularly an issue when a company produces
in court cases. The litigation usually involves the dispute over how costs are allocated to a pred
product line that is of interest to the plaintiff. This is particularly an issue when a company produo
some products or services for a price-competitive market while other products or services arees
duced 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 i
single kitchen used to provide meals to both the nursing home and retirement home, meaning lab
costs and utilities costs of the kitchen are shared by the two homes. There is also a centralized cles
ing department that provides the cleaning services for both homes as well as the kitchen. The nursine
home serves only indigent patients who are on Medicaid. The state Department of Health and Family
Services (DHFS) reimburses NCI at Medicaid-approved cost reimbursement rates. The Medicaid
reimbursement rates are based on cost information supplied by NCI. The relevant cost and allocation
data for the most recent year appear in the following table:
Annual Operating Cost
Cleaning department
$ 90,000
$120,000
Central kitchen
Allocation Base
Kitchen
Nursing Home Retirement Home
Square feet of space
1,000
2,000
3,000
Number of residents
6.
4
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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F95e100c9-a0e8-40c0-9f58-bccf16814f16%2Ff3d8c8fa-b6c1-4b31-8dbf-12d3e7688a5b%2Fg0x6fuv_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Cost Allocation in Health Care Cost allocation is often the centerpiece of conflict that is resolved
product line that is of interest to the plaintiff. This is particularly an issue when a company produces
in court cases. The litigation usually involves the dispute over how costs are allocated to a pred
product line that is of interest to the plaintiff. This is particularly an issue when a company produo
some products or services for a price-competitive market while other products or services arees
duced 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 i
single kitchen used to provide meals to both the nursing home and retirement home, meaning lab
costs and utilities costs of the kitchen are shared by the two homes. There is also a centralized cles
ing department that provides the cleaning services for both homes as well as the kitchen. The nursine
home serves only indigent patients who are on Medicaid. The state Department of Health and Family
Services (DHFS) reimburses NCI at Medicaid-approved cost reimbursement rates. The Medicaid
reimbursement rates are based on cost information supplied by NCI. The relevant cost and allocation
data for the most recent year appear in the following table:
Annual Operating Cost
Cleaning department
$ 90,000
$120,000
Central kitchen
Allocation Base
Kitchen
Nursing Home Retirement Home
Square feet of space
1,000
2,000
3,000
Number of residents
6.
4
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?
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