Question

Women's Medical Center (WMC) divides its business into two departments including pediatrics (PD) and gynecology (GY). WMC expects to incur $50,000 of indirect (overhead) cost and has identified the following cost drivers that could be used to allocate the overhead costs to the two departments.

PD GY Physicians' salaries $400,000 $500,000 Number of patients 600 400 Nurses' salaries $120,000 $110,000
Assuming the evaluation of job performance is affected by the supervisors' ability to minimize the cost of operating their respective departments,___________________

Answer 1

To allocate the overhead costs to the pediatrics and gynecology departments, Women's Medical Center can use cost drivers such as physicians' salaries and number of patients.

Step-by-step explanation:

To allocate the overhead costs to the pediatrics (PD) and gynecology (GY) departments, Women's Medical Center (WMC) can use cost drivers such as physicians' salaries and number of patients.

One possible method of allocation is to use the proportion of physicians' salaries as the cost driver. In this case, the overhead cost allocated to PD would be $20,000 (40% of total) and the overhead cost allocated to GY would be $30,000 (60% of total).

Another method could be to use the number of patients as the cost driver. In this case, the overhead cost allocated to PD would be $33,333 (66.67% of total) and the overhead cost allocated to GY would be $16,667 (33.33% of total).