The Fixed Costs of Operating the Maintenance Facility of Indian

question 32

Essay

The fixed costs of operating the maintenance facility of Indian River Hospital are $4,500,000 annually. Variable costs are incurred at the rate of $30 per maintenance hour. The facility averages 40,000 maintenance hours a year. Budgeted and actual hours for 2020 are as follows:
$$\begin{array} { l c c } & \text { Budgeted } & \\& \text { hours } & \text { Actual hours } \\\text { Building and prounds } & 10,000 & 12,000 \\\text { Operating and emergency } & 8,000 & 8,000 \\\text { Patient care } & 21,000 & 22,000 \\\text { Adrninistration } & \underline{1,000} & \underline{1,200} \\\text{Total}& \underline{40,000} & \underline{43,200} \\\end{array}$$
Assume that budgeted maintenance hours are used to calculate the allocation rates.
Required:
a. If a single-rate cost allocation method is used, what amount of maintenance cost will be budgeted for each department?
b. If a single-rate cost allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage?
c. If a dual-rate cost allocation method is used, what amount of maintenance cost will be budgeted for each department?
d. If a dual-rate cost allocation method is used, what amount of maintenance cost will be allocated to each department based on actual usage?

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Definitions:

Acquisition Differential

The difference between the purchase price of an acquired company and the sum of its net assets' fair values.

Retained Earnings

The portion of a company's profit not distributed to shareholders as dividends but kept in the company to reinvest in its core business or to pay debt.

Cost Method

An accounting approach for investments, outlining that an investment is recorded at its acquisition cost, adjusting for any dividends received.

Deferred Tax Asset

An accounting term representing an asset that may be used to reduce any future tax liability originating from temporary timing differences between the accounting and tax treatment of transactions.