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.
Number of Square
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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