The Income Statement credit column of the work sheet would ...

[rmenurse]

The Income Statement credit column of the work sheet would include which of the following account(s)?
 a. assets, drawing, expenses
  b. expenses
  c. accumulated depreciation, liabilities, capital, revenue
  d. revenue

Question 2

Cost allocation in hospitals, alternative allocation criteria.
 
  Dave Meltzer vacationed at Lake Tahoe last winter. Unfortunately, he broke his ankle while skiing and spent two days at the Sierra University Hospital. Meltzer's insurance company received a 4,800 bill for his two-day stay. One item that caught Meltzer's attention was an 11.52 charge for a roll of cotton. Meltzer is a salesman for Johnson & Johnson and knows that the cost to the hospital of the roll of cotton is between 2.20 and 3.00. He asked for a breakdown of the 11.52 charge. The accounting office of the hospital sent him the following information:
 
  Meltzer believes the overhead charge is outrageous. He comments, There was nothing I could do about it. When they come in and dab your stitches, it's not as if you can say, Keep your cotton roll. I brought my own.'
 
  Required:
  1. Compute the overhead rate Sierra University Hospital charged on the cotton roll.
  2. What criteria might Sierra use to justify allocation of the overhead items bi in the preceding list? Examine each item separately and use the allocation criteria listed in Exhibit 14- 8 (page 563) in your answer.
  3. What should Meltzer do about the 11.52 charge for the cotton roll?

[bigsis44]

Answer to Question 1

D

Answer to Question 2

1. Direct costs = 2.40
Indirect costs (11.52  2.40) = 9.12

Overhead rate = 9.122.40 = 380

2. The answers here are less than clear-cut in some cases.

Overhead Cost Item Allocation Criteria
Processing of paperwork for purchase
Supply-room management fee
Operating-room and patient-room handling costs
Administrative hospital costs
University teaching-related costs
Malpractice insurance costs
Cost of treating uninsured patients
Profit component Cause and effect
Benefits received
Cause and effect
Benefits received
Ability to bear
Ability to bear or benefits received
Ability to bear
None. This is not a cost.

3. Assuming that Meltzer's insurance company is responsible for paying the 4,800 bill, Meltzer probably can only express outrage at the amount of the bill. The point of this question is to note that even if Meltzer objects strongly to one or more overhead items, it is his insurance company that likely has the greater incentive to challenge the bill. Individual patients have very little power in the medical arena. In contrast, insurance companies have considerable power and may decide that certain costs are not reimbursablefor example, the costs of treating uninsured patients.

[rmenurse]

Thank you

[bigsis44]

Happy to help you