+1 862 207 3288 Allocation of costs
Analyze the following scenario: Jump Hospital currently allocates all maintenance department costs based on departmental square feet. However, the manager of the pharmacy department has suggested that an ABC approach be used for the portion of the maintenance department costs that relate to repairing equipment. Her contention is that the pharmacy has relatively little equipment that breaks. However, it must subsidize many high-tech departments that require expensive equipment repairs.
Using the tables below, calculate the maintenance cost assigned to the pharmacy using the existing method and using an ABC approach. Clearly label your calculations in your analysis.
Maintenance Costs
Routine Maintenance Repairs Total
Volume (Square Feet) 100,000 800
Labor Hours 10,000 4000 14,000
Labor Cost/Hour $12.00 $18.00 $13.71
Supplies $20,000 $80,000 $100,000
Administration $15,000
Department Information
Pharmacy All Other Departments Total
Square Feet 2,000 98,000 100,000
Volume of Repairs 3 797 800
Hours of Repairs 6 3,994 4,000
Supplies Used for Repairs $200 $79,800 $80,000
Readings
1. Read the following chapters in your text, Financial Management for Public, Health, and Not-for-Profit Organizations. Study and review the key terms at the end of each chapter. Work as many problems as possible to understand the material. This is usually the best way to learn the course concepts.
o Chapter 4: Understanding Costs
o Chapter 5: Capital Budgeting
o Chapter 6: Long-Term Financing
2. Read the following article:
o Juszczak, T. (2004, Winter). Federal performance budgeting: The budget’s new clothes. The Journal of Government Financial Management, 53(4), 27-30. This article can be retrieved from the ProQuest database.
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http://vizedhtmlcontent.next.ecollege.com/pub/content/3163f4de-9303-4fb7-a24f-b75b830c0908/Math_Operational_Analysis.pdf
http://vizedhtmlcontent.next.ecollege.com/pub/content/8f9248b4-8c6a-4fd8-81ea-236e0116d267/Math_Investment_Decision.pdf
http://vizedhtmlcontent.next.ecollege.com/pub/content/67bf6096-5204-431e-8bf9-dce94bdc0496/Math_Allocation_of_Costs.pdf
