HSA 525- Health Financial Management Week 3: Homework Exercises 6-1 and 6-2, 7-1 and 7-2

Assignment Exercise 6–1: Allocating Indirect Costs

Study Table 6–1, Table 6–2, and review the chapter text describing how the indirect cost is allocated. This assignment will change the allocation bases input for (A) Number of Visits (Volume), (B) Proportion of Direct Costs, and (C) Number of Computers in Service.

Required 1. Compute the costs allocated to cost centers “Clerical Salaries,” “Administrative Salaries,” and “Computer Services” using the new allocation bases shown below. Use worksheet #1 that replicates the set up in Table 6–2. Total the new results. The new allocation bases are:

A = # Visits (Volume): PT = 9,600/OT = 4,000/ST = 2,400/Total = 16,000 (16,000 × $3.50 = $56,000)

B = Proportion of Direct Costs: PT = 60%/OT = 25%/ST = 15%/Total = 100% (% × $55,000)

C = # Computers in Service: PT = 10/OT = 3/ST = 3/Total = 16 (16 × $5,000 each = $80,000).

2. Using worksheet #2 that replicates the set up in Table 6–1, enter the new direct cost and the new totals for indirect costs resulting from your work. Total the new results.

Assignment Exercise 6–2: Responsibility Centers

Choose among the Case Study in Chapter 27, the clinic in Mini-Case Study 2, or the Metropolis Health System information as contained in its Case Study and the Appendix that contains its financial statements. Designate the responsibility centers and the support centers for the organization selected. Prepare a rationale for the structure you have designed.

Assignment Exercise 7–1: Analyzing Mixed Costs

The education coordinator decides that the community college packs may be unduly influencing the high–low computation. She decides to rerun the results, omitting the community college volume.


1. Using the monthly utilization information presented here, and omitting the community college training packs, find the fixed and variable portion of costs through the high–low method. Note that the college only acquires packs in three months of the year: January, May, and September. These dates coincide with the start dates of their semesters and summer school.

2. The reason the education coordinator needs to know how much of the cost is fixed is because she is supposed to collect the appropriate variable cost from the community college for their packs. For her purposes, which computation do you believe is better? Why?

Month Total Number of Training Packs Total Cost Community College Number Packs Community College Cost January 1,000   $6,200   200 $1,240   February 200 1,820     March 250 2,350     April 400 3,440     May 700 4,900 300 2,100 June 300 2,730     July 150 1,470     August 100 1,010     September 1,100   7,150 300 1,950 October 300 2,850     November 250 2,300     December 100 1,010

Assignment Exercise 7–2: Calculating the Contribution Margin

The Mental Health program for the Community Center has just completed its fiscal year end. The program director determines that his program has revenue for the year of $1,210,000. He believes his variable expense amounts to $205,000 and he knows his fixed expense amounts to $1,100,000.


1. Compute the contribution margin for the Community Center Mental Health Program.

2. What does the result tell you about the program?

Important Note: HSA 525 Health Care Finance e-book is needed for this assignment. Upon hand-shake I will email the link login/password to access e-book.

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