Accounting problem.
Community Recovery Clinic offers two types of services: inpatient and outpatient. They have two types of service departments: administration and housekeeping. Direct costs of nursing care and supplies can be traced directly to the patient.
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Departments Employees Footage
Inpatient 40 20.000
Outpatient 20 10,000
Administration 10 5,000
Housekeeping 5 5,000
Overhead costs for each department are as follows:
Administration $500,000
Housekeeping $200,000
Administration is allocated based on number of employees and housekeeping is based on square footage. Carry out calculations to four decimal places.
Required:
- Allocate service department costs using the direct method.
- Allocate service department costs using the reciprocal method.
- What is the other method of allocation?
- Briefly discuss the pros and cons of each method and select the best one.
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