Cost allocation. Use the information in Exhibit 12.12 to answer these questions.
a. Dick Clark, the new administrator for the surgical clinic, was trying to figure out how to allocate his indirect expenses. He decided to try to allocate utilities based on square footage of each department, to allocate administration based on direct costs, and to allocate laboratory based on tests. How would indirect costs be distributed as a result?
b. Joe Ryan, the director of laboratories, was given approval to add 250 square feet of space to the lab by expanding into the day-op suite, which lost the space. What will his new fully allocated expenses be? (Assume that there are no new additional costs incurred by adding the 250 square feet.)
c. Mary Jones, the manager of the endoscopy suite, is concerned about adding more space. She contends that if the cystoscopy and endoscopy units were combined, fewer staff would be needed, and direct costs could be reduced by $40,000 ($20,000 in each unit). She also feels that the day-op area is underutilized and that 200 square feet could be used by a combined unit when excess capacity was needed. Assuming that the 200 square feet were to be allocated equally between the endoscopy and cystoscopy suites, in addition to the renovations as described in part b, what would the total allocated costs for each of these two services be under this scenario?