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Unit 5 Problem 11 Cost Allocation.m4aUnit 5 FINAL Problem 11_A Cost
Allocation.xlsx
Unit 5 Health Care Cost Accounting
INTRODUCTION
Cost accounting provides management with valuable information regarding the cost
structure of the organization. Cost accounting is a process that analyzes costs from a
variety of situations, such as classifying costs, allocating costs, assembling costs, and
determining product costs. Cost accounting has changed significantly from the days of
simply preparing a Medicare cost report. Organizations evaluate costs for the
department, provider, procedure, service line, and cost center. This information also
helps organizations negotiate with third-party payers.
OBJECTIVES
To successfully complete this learning unit, you will be expected to:
1. Explain different methods to estimate cost in a health care organization.
2. Explain how to allocate cost in a health care organization.
3. Explain the relationship between cost and revenue.

Review the assignment description and scoring guide to know the requirements and
grading criteria.
Resources
System Implementation Scoring Guide.
You get to be creative in this assignment. As always, keep it nice and simple.
After you review the, Perspective 13.5, Financial Benefits From IT, on page 616 of
your Financial Management of Health Care Organizations text by Zelman, McCue, Glick,
and Thomas and section you will conduct further research. You may use any materials
(i.e., textbook, the Internet and Capella’s library to help complete the task.
The following is a helpful resource. When you click on your syllabus link, you will notice
two additional resources for the assignment.
Plowman, N. (2014). Writing a cost benefit analysis. Retrieved from
http://www.brighthubpm.com/project-planning/58181-writing-a-cost-benefitanalysis/
Plowman, N. (n.d.). Cost Benefit Analysis Template Unit 5_4A32F8_cost-benefitanalysis-template _1_.xls
Lastly, you will then create one PowerPoint presentation, 15–20 slides (not including
title/reference slides). You will then include detailed speaking notes in the presentation.
Keep in mind that you may keep it very basic and it is important to be able to describe
what you are doing. You do not have to use the template provided.
If you have little financial experience and get confused on developing a cost-benefit
analysis, then I would expect detailed speaking notes on the concepts of a cost-benefit
analysis (i.e., what is a cost-benefit analysis, identifying costs/benefits, and evaluating
cost and benefits). If you get confused on any aspect of the assignment, you may
provide more detailed speaking notes on the concepts behind the assignment.
Additional resource: Wily Manager. (n.d.). How to do a cost benefit analysis: A 3-minute
crash course [Video]
You get to be creative here and keep in mind all the numbers are not provided to you.
You get to fill in the gaps with a few numbers. For example, I was previously
communicating with one of your peers that I will share here with you. I mentioned to
keep it simple, as the template I provided may be a bit confusing (located
under the, Updates and Handouts section). If you have little financial experience,
I would not recommend using the template at all if you are the least bit confused and
instead, provide some narration.
The Excel template is converting to PV. The Excel sheet breaks it down per year (1, 2,
3….12). If you are using an online calculator, it will present the number after the period
of time inserted into the calculation for future value or present value.
I will accept any student’s work who provides narration on the numbers or concepts
behind the task. This will suffice to complete the task.
You may also use Table B.1 or table B.2 to calculate PV or FV. By using the tables if you
know the period (12 years) of time and you know the interest rates (2%), so you do
not have to calculate the future value factor (1 +i)n because the table will provide you
that number. If you know the future value of a dollar, then we know the future value of
any dollar amount.
I would recommend in this case using any PV or FV Calculator online.
Here is just one http://www.investopedia.com/calculator/fvcal.aspx
For example, a peer was thinking about a software license cost of 30,000 dollars, which
will equate to $38,047.25 in 12 years, using a 2% interest rate. The only thing the
$38,047.25 will not break it down per year (1, 2, 3….12). However,
other online calculators will break it down per year.
Keep it nice and basic and provide narration on the concepts we are discussing. Here
are some additional examples and links, please keep in mind URLs may change.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3810528/
https://www.sciencedirect.com/science/article/pii/S0002934303000573
https://www.dynamicchiropractic.com/mpacms/dc/article.php?id=46436
https://www.academia.edu/7689703/BreakEven_Analysis_of_MRI_Facility_at_a_Large_Tertiary_care_Teaching_Hospital_of_Nort
h_India
Current
Year (CY)
CY +1
CY +2
CY +3
CY +4
Costs
Total Costs (Future Value)
Total Costs (Present Value)
$
$

$
$

$
$

$
$

$
$

$
$

$
$

$
$

$
$

$
$

Benefits
Total Benefits (Future Value)
Total Benefits (Present Value)
Present Value Discout Rate
2%
CY +5
Cost Benefit Analysis
Total PV Benefits
$
Total PV Costs
$
NET BENEFIT
0,00
$
$

$

$
$

$

Exhibit 12-11 Basic statistics for cost allocation in a surgery clinic used in Problem 11
Step 1: Complete the Statistics
Step 2: Compute Converted Statistics
A
B
C
D
E
F
Square Feet Dept. Costs
Lab Tests
Square Feet
Dept. Costs
Lab Tests
Utilities
$400,000
Administration
4,000
$700,000
4,000
Laboratory
2,000
$750,000
2,000
$750,000
Day-Op suite
4,000
$2,500,000
6,000
4,000
$2,500,000
6,000
Cystoscopy
2,000
$575,000
2,000
2,000
$575,000
2,000
Endoscopy
1,000
$300,000
1,500
1,000
$300,000
1,500
Total
13,000
$5,225,000
9,500
13,000
$4,125,000
9,500
Step 3: Compute Allocation %
G
H
I
Utilities
Administration Laboratory
Utilities
Administration
Laboratory
Day-Op suite
Cystoscopy
Endoscopy
Total
31.00%
15.00%
31.00%
15.00%
8.00%
100%
Note: Differences due to rounding
0.00%
18.20%
60.60%
%
%
79%
0.00%
0.00%
63.00%
%
%
63%
Step 4: Allocate Costs
J
K
Department Costs
Utilities
$
400,000.00 $ (400,000.00)
$
700,000.00 $ 123,077.00
$
750,000.00 $ 61,538.00
$
2,500,000.00 $
$
$
$
$
$
$

L
Administration
M
Laboratory
$ (823,077.00) $
$ 149,650.00 $ (961,189.00)
$
$
$
$
$
$
$
$

%
N
Total
$ 2,500,000.00
$
$
$ 2,500,000.00

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