Question Description
7.2
The audiology department at Randall Clinic offers many services to the clinics patients. The three most common, along with cost and utilization data, are as follows:
Service Variable Cost per service Annual Direct Fixed Costs Annual Number of visits
Basic examination $5 $50,000 3,000
Advanced examination $7 $30,000 1,500
Therapy session $ 10 $40,000 500
Overhead allocation = (3000/5000) * $50,000 = 30,000
b. Assume that the audiology department is allocated $100,000 in total overhead by clinic, and the department director has allocated $50,000 of this amount to the three services listed above. What is the fee schedule assuming that these overhead costs must be covered? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of number of visits.)
c. Assume that these services must make a combined profit of $25,000. Now what is the fee schedule? (To answer this question, assume that the profit requirement is allocated in the same way as overhead costs.)
