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Rio Grande Medical Center Cost Allocation Concepts

In: Business and Management

Submitted By caroline06
Words 341
Pages 2
Question 1
No, even though the Outpatient clinic is making more profit and needs the additional space. The dialysis center should not suffer all the cost. Moving the dialysis center makes more sense because they can increase their revenue if they could take on more patients. The Outpatient Clinic increased their capacity thus should pay the costs of this consumption of the usage of 25% increase.

Question 2
Yes. they should be charged the actual cost of the new facility because they are using the new facility. They were spending $300,000 allocating 20,000 square feet. Now they are spending $100,000 extra for an entire building. The outpatient clinic assumed the additional cost for the expansion of space they will be using as well. All departments’ costs would increase since the dialysis center is out of the building and not sharing the indirect costs for the facility use and other general indirect costs.

Question 3
No, this only designates the money for the building and facility itself others costs. This is not including inflation, depreciation, insurance, and other fees. There are also advantages of the new building which includes the parking structure and easy access ability, newer equipment and facility therefore less maintenance required. Even though the building has a useful life over 20 years. On the 21st year it will be mortgage free however there still be other general indirect costs that makes up $270,000 of costs as well, these costs will only increase due to inflation and cost increase.

Question 4
The revenue the pharmacy is making from the dialysis center is 100% profit. This is great for the pharmacy because they can pay for their costs and employees. If the Dialysis center finds a different pharmacy or makes an agreement with that pharmacy gives a discount or receives 50% of the revenue received from the drugs upcharge as a revenue to...

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