Surgery Center is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 40%. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, including an estimate of the average cost of both general surgery and orthopedic surgery. The clinic’s three activity cost pools and their cost drivers follow.
Activity Cost Pool Cost Cost Driver Driver Quantity
Professional salaries $1,600,000 Professional hours 10,000
Patient services and supplies 27,000 Number of patients 600
Building cost 150,000 Square feet 1,500
The two main surgical units and their related data follow.
Service Hours Square Feet* Patients
General surgery 2,500 600 400
Orthopedic surgery 7,500 900 200
Required
1. Compute the cost per cost driver for each of the three activity cost pools.
2. Use the results from part 1 to allocate costs to both the general surgery and the orthopedic surgery units. Compute total cost and average cost per patient for both the general surgery and the orthopaedic surgery units.
