CASE (A): SIMPLE MEDICAL FIRM

Michael, George and Peter are 3 doctors who established a group practice center
consisting of 3 clinical departments according to their specialties; respectively: a
Walk-in department, a Pediatric department and an Adult department.

As they found out that almost all of their patients would need laboratory testing,
they decided to establish a laboratory in the premises of the center. Also, they
determined to establish an administration department to take care of all clerical and
managerial issues of the center. They rented a villa with a total surface area of
10,000 square meters and with a very good price of $ 50,000 per year including
electricity, water and telephone bills (utilities). The surface area of the place was
divided into 5 sections as in exhibit (1):

Walk in Department 2000 m2

Pediatric Department 2500 m2
Adult Department 2500 m2
Laboratory 2000 m2
Administration 1000 m2

The center received a total of 10,000 patients during the last year with a distribution
among the 3 clinical departments as in exhibit (2):

Walk in Department 2500 patients

Pediatric Department 4500 patients
Adult Department 3000 patients

The salaries, supplies and all expenses related to service provision in each
department was as in exhibit (3):

Walk in Department $ 200,000

Pediatric Department $ 200,000
Adult Department $ 300,000
Laboratory $ 175,000
Administration $ 100,000

Discussion Questions:
1- How many mission centers and service centers in this case?
2- What are the total costs of the center?
3- What is the suitable cost-driver to be used for each service center?
4- Using the direct allocation method, do the allocation for the utilities cost

Assignment:
5- Calculate the cost of each visit for each of the three departments

Dr. Amr Fouad Healthcare Finance Case AUC-IMD-MC

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