Reliable Care\'s three subunits arc Child Care, Infant Care and Newborn Care. Di
ID: 2501200 • Letter: R
Question
Reliable Care's three subunits arc Child Care, Infant Care and Newborn Care. Direct costs for each division are doctor's salary, nurse's salary, and medical supplies Indirect costs are rent and administrative salaries. Revenues and Direct expenses for the year for each of Reliable's subunits are: The annual rent for the entire facility is $300,000. The cost driver to allocate rent to each subunit is square footage occupied. The breakdown for space occupied by each division is as follows: Child Care 7,500 square feet; Infant Care 3,000 square feet; Newborn Care 2.000 square feet. Administrative salaries for the year totaled $200,000. The cost driver to allocate Administrative salaries is revenues. Use the space on the following page to prepare: Schedules to allocate each of two indirect costs to each subunit. Profit and Loss Statements for each subunitExplanation / Answer
1) Cost per driver
i) Annual Rent = $300,000
Total Square feet = (7,500+3,000+2,000) = 12,500
Cost per square feet = $300,000 / 12,500 = $24 per square feet
ii) Administrative salary = $ 200,000
Total Revenues = ( 1,500,000 + 900,000+ 600,000) = 3,000,000
Cost per revenue = $200,000/$3,000,000 = 0.0666667
A) Allocation of Indirect expenses
B) Profit and Loss Statement
Particulars Child Care Infant Care Newborn care Area 7,500 3,000 2,000 Cost pe square feet 24 24 24 Allocation of Rent 180,000 72,000 48,000 Revenues 1,500,000 900,000 600,000 Cost per revenue 0.0666667 0.0666667 0.0666667 Allocation of Admin. salary 100,000 60,000 40,000