Question

Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics.

Required:
For each of the following costs incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object.

1. The wages of pediatric nurses / The pediatric department
2. Prescription drugs / A particular patient
3. Heating the hospital / The pediatric patient
4. The salary of the head of pediatrics / The pediatric patient
5. The salary of the head of pediatrics / The particular pediatric patient
6. Hospital chaplain's salary / A particular patient
7. Lab tests by outside contractor / A particular patient
8. Lab tests by outside contractor / A particular department

Answer 1

1. direct cost

2. direct cost

3. Indirect cost

4. indirect cost

5. direct cost

6. direct cost

7. direct cost

8. direct cost

Step-by-step explanation:

Direct costs can be traced directly (through observation) on the cost object whilst indirect costs can not be traced directly to the cost object.

For example direct cost that can be traced on the pediatric patient are : prescription drugs, tests by both inside and outside contractor,chaplain's salary and wages for pediatric nurses.

Indirect cost that can not be traced on the pediatric patient are : Heating the hospital, salary of the head of pediatrics. This is because we can not actually trace their work or expense on the patient.