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REPORT ON

Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul


Wadud Memorial Hospital’, Khulna

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY

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Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul
Wadud Memorial Hospital’, Khulna

SUBMITTED TO
M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management

SUBMITTED BY
Group: 01(Warrior)
Level-3, Semester-1
Faculty of Business Administration and Management

Name of the students Reg. No. Roll No.


Md. Kamruzzaman (L) 00660 01

Shuvradeb Barai 00668 09

Abu Zafour 00680 21


Sahana Parveen 00666 07
Nazmul Alam Siddiqui 00565 24

Cost Accounting
Course Code: AIS 314

SUBMISSION DATE: 24 April 2008

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PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY

Letter of Transmittal

Date: 24 April 2008

To
M. Takibur Rahman
Lecturer
Department of Accounting and Information System
Faculty of Business Administration and Management

Subject: Submission Report on Cost Accounting.

Dear Sir,

Here we are submitting our report on “Treatment of Overhead Allocation in


Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna”
prescribed by you in your course Cost Accounting. For this Purpose, we have gone
through internet, different books, articles, journals, interview of authorities and
employees of the respective organizations and class lecture sheets for the relevant
information of the assigned topic.

Please call me for any further information at your convenient time and place.

Yours truly,

Group: 01(Warrior)
Level-3, Semester-I
Faculty of Business Administration and Management
Patuakhali Science and Technology University

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Letter of Authorization

Date: 24 April 2008

To
M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management

Subject: Declaration regarding the validity of the report.

Dear Sir,

This is our truthful declaration that the “Treatment of Overhead Allocation in


Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna” we have
been prepared is not a copy of any research report previously made by any other
students.

We also express my honest confirmation in support of the fact that the said “Report”
has neither been used before to fulfill any other course related purpose nor it will be
submitted to any other person or authority in future.

Yours truly,

Group: 01(Warrior)
Level-3, Semester-I
Faculty of Business Administration and Management

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Patuakhali Science and Technology University

Acknowledgement

At first we desire to express our deepest sense of gratitude of almighty Allah.

With profound regard we gratefully acknowledge our respected course teacher M.


Takibur Rahman, Lecturer, Department of Accounting & Information System,
Faculty of Business Administration and Management, for his generous help and day
to day suggestion during the survey.

We like to give thanks especially to our friends and many individuals, for their
enthusiastic encouragements and helps during the preparation of this report us by
sharing ideas regarding this subject and for their assistance in typing and proof
reading this manuscript.

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Table of Contents

Chapter–1
Page
► Executive summary ……………………………………………..……………………...……. 01
►Origin of the report ………………………………………………………………………........ 02
► Purpose of the report ………………………………………………………………………… 02
► Limitation of the Study …………………………………………………..…………………... 03
► Methodology of the Study ………………………………………………..……………...…... 04

Chapter – 2

►Introduction …………………………………………………………………………………… 05
► Overview of Abdul Wadud Memorial Hospital ……………………………………………… 06
► Definition Overhead ………………………………………………………………………….. 07
► Classification of Overhead …………………………………………………………………… 07
► Cost Categories Normally Included in a Firm’s Overhead Schedule ………………………... 11
► Income Statement …………………………………………………………………………….. 12
► Basis of Cost Allocation ……………………………………………………………………… 13
► Calculation of profit Margin for Seat ………………………………………………………… 15
► Calculation of Profit Margin for Other Sources ……………………………………………… 17

Chapter – 3

►Summary ……………………………………………………………………………………… 18

Chapter – 4

► Recommendations …………………………………………………………………………..... 19
► Conclusion ……………………………………………………………………………………. 20
► References ……………………………………………………………………………………. 21

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Executive Summary

This report is an assigned job as a partial fulfillment of course requirement by honor


Course teacher M. Takibur Rahman Lecturer, Department of Accounting &
Information System, Faculty of Business Administration and Management.
Patuakhali Science and Technology University Dumki, Patuakhali. It is the
optimum aggregated outcome of 5 pupils’ about “Treatment of Overhead Allocation
in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna”.

In 1998, at the bank of Ruphsa River Abdul Wadud Memorial Hospital was opened
with 200 beds to help the people who are deprived of medical care. Now it is
continuing its service with its 200 general beds and 50 well equipped cabins with
the reputation of the biggest private hospital in Khulna Division. They generally
prepare income statement and balance sheet to justify their profit. According to our
study over overhead allocation, here we try to treatment the overhead allocation in
determination of seat rent of Abdul Wadud Memorial Hospital.

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Origin of the report

We are lucky to say that our honorable course teacher M. Takibur Rahman
Lecturer, Department of Accounting & Information System, of Faculty of
Business Administration and Management. Assigned us a report on
“Treatment of Overhead Allocation in Determination of Seat Rent of ‘Abdul
Wadud Memorial Hospital’ Khulna” This report is prepared on the basis of
surveying the Abdul Wadud Memorial Hospital.

Purpose of the Report

As a business expectative of future, we should have to gather experience


beside our survey. We should not concern our lesion only in classroom but to
implement it in practical life that will help us in our future life .A clear
objective help in preparation of well decorated report in which other take the
right type of decision .So, we identifying objectives is very much important.
Our purpose of preparing the report is:

►To know about the overhead allocation

►To identifying the Method of allocation of overhead costs

►To know about the Treatment of Overhead Allocation in Determination of


Seat Rent.

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Limitations and Scope of the Report

As a student of faculty of Business Administration and Management, 5th semester,


this is our first initiative for making a report on “Treatment of Overhead Allocation
in Determination of Seat Rent of ‘Abdul Wadud Memorial Hospital’ Khulna” by
meeting a survey. Beside this we have faced the following hindrances in preparing
this report:

► Lack of knowledge and experience


► Short of time
► Lack of computer facilities
► Lack of sufficient privileges
►Lack of communication facilities

The survey report focuses on Treatment of Overhead Allocation in Determination of


Seat Rent of Abdul Wadud Memorial Hospital. The survey may not be more
comparable or more valid. Moreover, the report is emphasized on the primary data
such as interview of the administrative manager of Abdul Wadud Memorial
Hospital. Here we consider only the information that we collect from our survey.

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Methodology of the Study

This report is based on both primary and secondary data. Initially, the work is
started with data those were available at hospitals’ news letter. Moreover, it
becomes helpful to gather some more information from the website of the hospital.

Later on, we have collected the data of balance sheet and income statement from a
faithful executive person of accounting department of Abdul Wadud Memorial
Hospital. According his providing data we the Group - 01 made our report on
treatment of overhead allocation in determination of seat rent of Abdul Wadud
Memorial Hospital. So, all the liability of accuracy of this assessment is gone over
his providing data.

Then we analyze those data from many angles, in different aspect and present the
information in different segment according to their category, in compact way. We
use weight of revenue for allocating the cost. We highlight different important
things, which we found during our survey. After doing all of those we submit the
report to the proper authority.

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Introduction

In business, overhead cost or overhead expense refers to an ongoing expense of


operating a business. The term overhead is usually used to group expenses that are
necessary to the continued functioning of the business but that do not directly
generate profits. Overhead expenses are all costs on the income statement except for
direct labor and direct materials. Overhead expenses include accounting,
advertising, depreciation, indirect labor, insurance, interest, legal fees, rent, repairs,
supplies, taxes, telephone, travel and utilities. Overhead allocation is one of the
more confusing and complex issues facing many businesses. Yet, figuring out how
to best determine overhead is very important to a firm’s profitability. While using
the direct method of cost allocation is simple, its simplicity makes it very inaccurate
and costly to the bottom line.

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Overview of Abdul Wadud Memorial Hospital

The general health status in Bangladesh is very weak and horrifying which is
natured by malnutrition, poor hygiene, and the lack of medical facilities. The people
in southwestern part of Bangladesh are neglected and less fortunate in many aspects
of their lives. The statistics are disheartening: only one hospital bed for every 3000
people, and one doctor for 5000 people. As a result, a lot of people die in every year
for lack of proper medical facilities. In 1998, at the bank of Ruphsa River Abdul
Wadud Memorial Hospital was opened with 200 beds to help the people who are
deprived of medical care. The hospital provides a full range of medical service
through its General, Eye, Mother & Child, Acid Burnt and Dental Units. Now it is
continuing its service with its 200 general beds and 50 well equipped cabins with
the reputation of the biggest private hospital in Khulna Division. The hospital staff
is comprised of qualified and skilled doctors, nurse, and supporting staff. The
hospital also operates satellite medical camps throughout the rural communities.

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Definition Overhead

Any expenditure which cannot be charged directly to any job, operation or process
may be called overhead. Thus, overhead indicates indirect expenditure of any kind.
It includes indirect material, indirect wages and indirect expenses.

Overhead has many other names such as overhead cost, overhead expense, indirect
cost, overhead charge, manufacturing and commercial expenses, non-productive
cost, supplementary expenses, supplementary etc.

In business, overhead, overhead cost or overhead expense refers to an ongoing


expense of operating a business. The term overhead is usually used to group
expenses that are necessary to the continued functioning of the business but that do
not directly generate profits.

Overhead expenses are all costs on the income statement except for direct labor and
direct materials. Overhead expenses include accounting, advertising, depreciation,

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indirect labor, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone,
travel and utilities.

According to Eric L. Kohler— overhead cost is any cost of doing business other
than a direct cost of an output of production or services.

According to H.J. Wheldon— overhead represents the cost of indirect material,


indirect labor, and such other expenses including services as cannot conveniently be
charged to a specific unit.

Here, indirect materials reefer to material cost which cannot not be allocated to any
job or processes, but can be apportioned to or absorbed by jobs or processes.

Indirect labor/wages refer to wages other than direct wages, and indirect expenses
are also expenses other than direct expenses.

Classification of Overhead

Overhead can be classified under the following four headings—

1. Function wise classification

2. Element wise classification

3. Behavior wise classification

4. Control wise classification

1. Functional classification of overhead

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In case of functional classification, overhead expenses can divided into two general
categories—

1.1. Factory overhead

Factory overhead is generally defined as indirect materials, indirect labor and


all other factory expenses that cannot conveniently be identified with nor
charged directly to specific jobs or products or final cost objectives, such as
government contracts. Simply stated factory overhead includes all
manufacturing cost except direct materials and direct labor linked with
manufacturing products or providing services.

2.2 Commercial overhead

Commercial overhead refers to those overhead which exclude all factory


overheads. These fall into selling distribution overhead and administrative
overhead. Selling and distribution overhead begins at the point where the
factory cost end, that is, when manufacturing has been completed and the
product is stable condition.

Sales mans’ salary and commission, window dressing expenses, advertisement


expenses (including fee, gifts, samples, exhibition etc.), travelers’ commission,
market research expenses, cost of after sales services, normal bad debts etc. are
examples of the selling overhead.

Godown expenses in connection with storing of finished products awaiting sale,


packaging charges, loading and unloading, freight (where it is not charged to
customers), insurances, maintenance and repair of delivery vans, salary of
deliverymen etc. are example of distribution overhead.

Administrative overhead includes expenses incurred in directing and controlling


the organization. Rent, rates, and taxes of administrative building, salary of the

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staffs, office connected with general administration, depreciation of office
equipment and of building, postage, telephone, stationary, office expenses,
directors’ remunerations, bank charges etc. are examples of administrative
overhead.

2. Element wise classification

If indirect expenses are classified element wise with come across three classes—

a. Indirect material

b. Indirect labor

c. Indirect expenses

Element wise classification may be done within each function or for all functions
taken together. The following are some examples.

a. Indirect material

Factory: consumable stores, jutes and cotton wastes, lubricating oil, fast and
materials, fire-extinguishing material, stationary, canteen food stuff etc.

Administration: stationary, canteen food staff, cleaning materials etc.

Selling and distribution: packing materials, stationary, fuel and lubricating oil for
delivery van etc.

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b. Indirect labor

Factory: salary of foremen, supervisors, works manager etc., wagers of


maintenance and repairs staff, wages of indirect workers, wages of time office
and pay-roll department personnel, wages of stores staff etc.

Administration: salary of all employees of administrative function form


managing director down to sweeper, directors’ remuneration etc.

Selling and distribution: salary of sales office staff and distribution men.

c. Indirect expenses

Factory: repairs and maintenances, tent, rates and taxes, insurances, depreciation,
stores expenses (other than salary of repairs staff, maintenance staff, and store
staff) etc.

Administration: All expenses in connection with general administration (other


than salary and material used) such as rents, rates and taxes, lighting,
depreciation, printing postage etc.

Selling and distribution: Godown rent, insurances, advertisement, depreciation,


window dressing, exhibition, market research etc.

3. Behavior wise classification

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The change in the volume of the production is the main consideration for behavior
wise classification. Expenses that remain fixed irrespective of the level of output
constitute fixed overhead; expenses that changes proportionately with the changes
in the level of output constitute variable overhead and expenses that change but not
proportionately with the change in the level of output constitute semi-variable
overhead or semi-fixed overhead.

Behavioral classification is of fundamental importance for the purpose of material


costing, for preparing flexible budget or standards and also for the purpose of
control of overhead costs. The following are the some of the examples of fixed,
variable, and semi-variables (semi-fixed) overhead costs:

Fixed overhead: rent, rates, insurance, postage, stationary, salary of management


staff etc..

Variable overhead: indirect labor, indirect material, power, packing, travelers’ and
salesmen’s commission etc.

Semi-variable or semi-fixed overhead: Repair and maintenances, depreciation,


supervisors’ salary etc. Up to a certain level of production those items remain fixed:
but beyond that level they increase, but not in strict proportion. Thus, in the semi-
variable overhead are fixed elements and variable elements. These are to be
segregated to have only two classes— fixed overhead and variable overhead.

04. Control wise classification

Overhead expenses can be classified into two categories on the basis of control—

i. Controllable costs, and

ii. Uncontrollable costs.

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i. Controllable costs

Overhead costs which can be controlled by the exercise of proper managerial


influence are known as controllable costs.

ii. Uncontrollable costs

Overhead costs which cannot be controlled in spite of the best exercise of proper
managerial influence are known as uncontrollable costs.

Cost Categories Normally Included in a Firm’s Overhead Schedule

Accounting — costs incurred for staff accountants or outside accounting


vendors.
Administration — typically, salary costs of people not charging to any one final
direct project.
Annual Leave — vacation time paid to employees, officers, and owners.
Auto and Travel — costs for travel that are not project related.
Bad Debts — losses on projects due to write offs of billed uncollected costs
and/or unbilled costs.
Bonuses — incentive compensation
Business Taxes
Clerical Salaries — not charged direct to a project.
Computer Administration
Depreciation
Employee Insurance — medical, dental, life, disability, etc..
Employee recruiting — helps wanted advertising and interview expenses.
Holiday — all paid holidays observed by the firm.
Income Taxes — State income taxes are allowable.
Miscellaneous — any expense not included in another account.
Overhead — indirect business expenses not directly chargeable to a project.
Principals Salaries — not charged direct to a project.
Printing, Stationary — paper products not for promotional purposes.
Professional Services —general legal, accounting, management consulting, and
other services.

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Rent — office and storage space costs, not charged direct to
a project.
Repair and Maintenance — services and minor repairs to office space and
equipment.
Sick Leave — costs paid by the firm normally associated for leave taken for illness,
injury, etc.
Social Security Taxes
Subscriptions and Publications
Telephone — costs incurred not chargeable to direct projects.
Unemployment Taxes
Warranty Services — costs incurred for previously completed projects, or fees for
service contracts.

Abdul Wadud Memorial Hospital


Income Statement
For the Year Ended 31 December 2007

*All amounts are in taka


Expenses Revenues
Particulars Amount Particulars Amount

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Salary of doctors 2,880,000 Seat rent
Salary of consultant 1,344,000 General bed 15,000,000
Salary of directors 1,200,000 Cabin 6,750,000
Salary of officers 1,296,000 (Less) vacancy allowance (2,250,000)
Wages of nurse 1,120,000 19,500,000
Wages of cleaners 600,000 Outdoor 3,900,000
Wages of MLF 240,000 Operation theater charge 5,000,000
Transportation expenses 320,000 Laboratory 2,200,000
Bonus 600,000 Food and nutrition 2,400,000
Generator bill 220,000 Transportation 1,200,000
Electricity bill 350,000
Telephone bill 100,000
Water bill 75,000
Stationary expenses 245,000
Laboratory expenses 500,000
Food and nutrition 860,000
Cleaning cost 240,000
Depreciation expenses 3,500,000
Operation theater (OT)
expenses 500,000
VAT (2.25%) 7,600,000
Operating and maintenance of
machinery 400,000
Miscellaneous expenses 200,000
Tax 2,611,000
Total expenses 27,001,000
Net profit 7,199,000
Total 34,200,000 34,200,000

Basis of Cost Allocation

All cost is allocated in the above table based on the revenues’ weight. The weighted
revenues are multiplied by specific cost then we get different cost under different head.
Such as Salary of officers, Salary of directors, Wages of cleaners, Bonus, Generator bill,
Electricity bill, Water bill, Stationary expenses, Cleaning cost, Depreciation expenses,
VAT (2.25%), Operating & maintenance expenses, Miscellaneous expenses and Tax
expenses are allocated on the basis of the weight of seat rent (general bed and cabin)

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revenue, outdoor, operation theater (OT) charged, laboratory, transportations, food and
nutrition’s revenues. Which are as follows —

*All amounts are in taka


Categories of Revenues Amount Weights
Seat rent
General 15,000,000 43.86%
Cabin 4,500,000 13.16%
Outdoor 3,900,000 11.40%
Operation theater (OT) 5,000,000 14.62%
Food and nutrition 2,400,000 7.02%
Transportation 1,200,000 3.51%
Laboratory 2,200,000 6.43%
Total 34,200,000 100%

Wages of MLF expenses is allocated on the basis of the weighted revenues of seat rent
(general bed and cabin), outdoor, operation theater (OT) charged, and laboratory. Which
are as follows —

*All amounts are


in taka
Categories of Revenues Amount Weights
Seat rent
General 15,000,000 49.02%
Cabin 4,500,000 14.70%

Outdoor 3,900,000 12.75%


Operation theater (OT) 5,000,000 16.34%
Laboratory 2,200,000 7.19%
Total 30,600,000 100%

Salary of doctors, Salary of consultant are allocated on the basis of the weighted revenues
of seat rent (general bed and cabin), outdoor, operation theater (OT) charged. Which are
as follows —
*All amounts are
in taka
Categories of Revenues Amount Weights

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Seat rent
General 15,000,000 52.82%
Cabin 4,500,000 15.85%

Outdoor 3,900,000 13.73%


Operation theater (OT) 5,000,000 17.60%
Total 28,400,000 100%

Wages of nurse is allocated on the basis of the weighted revenues of seat rent (general bed
and cabin), operation theater (OT) charged. Which are as follows —

*All amounts are in taka


Categories of Revenues Amount Weights
Seat rent
General 15,000,000 61.22%
Cabin 4,500,000 18.37%

Operation theater (OT) 5,000,000 20.41%


Total 24,500,000 100%

Calculation of profit Margin for Seat


Calculation of expense per seat

For calculating seat expense of bed, total expense is divided by the multiplication of
effective day a year and number of beds.

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Calculation of profit per seat

Net income
* Profit Margin = × 100
Revenues

Categories General Cabin


Overhead Expenses 8,507,238 2,553,709

Other expenses 2,916,781 875,248

Total expense 11,424,019 3,428,957

Number of seat 200 50


Effective Working days 300 200
Expenses per seat 11,424,019 3,428,957
300 × 200 200 × 20
= 190.40 = 342.90
All amounts are in taka

Categories General Cabin


Expense per bed 190.40 342.90

Other expenses 2,916,781 875,248

Total expense 11,424,019 3,428,957

Number of seat 200 50


Effective Working days 300 200
Expenses per seat 11,424,019 3,428,957
300 × 200 200 × 50
= 190.40 = 342.90

Revenue from per seat 250.00 450.00


Profit from per seat (250.00-190.40) (450.00-342.90)
= 59.60 = 107.10
Profit margin* = 23.84% = 23.83%

The cost of per general seat of Abdul Wadud Memorial Hospital’s is taka 190.40 per
day and against this cost they charged taka 250.00. As a result they earn taka 59.60

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per day per bed as profit. The percentage of profit of Abdul Wadud Memorial
Hospital’s is 23.84% on the revenue of general bed. So, from the seat rent Abdul
Wadud Memorial Hospital earn taka 3,575,981 per year. This source is the major
source of their earnings, because from this source they earn 23.84% whereas gross
profit is 21.05%.
Side by side they have also comfortable cabin. They provided extra facilities to the
cabin. For this reason they spend more that is Taka 342.90 per cabin per day.
Against this cost, Abdul Wadud Memorial Hospital charged Taka 450 per cabin per
day and they earn taka 107.10 per day per cabin as net profit. The profit is 23.83%
of revenue. Here we also find that Abdul Wadud Memorial Hospital use cabin for
higher rate of profit (23.83%) whereas gross profit is 21.05% of total cost.

From above discussion, it is clear that seat rent is the major source of earning of
Abdul Wadud Memorial Hospital. Both general seat and cabin gives higher rate of
profit. They simply think that more site is filled up by patient will increase higher
rate of profit.

Calculation of Profit Margin for Other Sources


*All amounts are
in taka

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Categories Expenses Revenues Net profit Profit margin*
Outdoor 2,892,173 3,900,000 1,007,827 25.84%
Operation Theater 4,309,161 5,000,000 690,839 13.82%
Food and Nutrition 2,245,537 2,400,000 154,463 6.44%
Transportation 991,439 1,200,000 208,561 17.38%
Laboratory 1,747,766 2,200,000 452,234 20.56%

Net income
*Profit Margin = ×100
Revenues

Calculation of Gross Margin of Abdul Wadud Memorial Hospital

Net income
Profit Margin = ×100
Revenues
7,199,000
× 100
= 34,200,000
= 21.05%

Summary

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Summary of Cost Allocation and Profit of Abdul Wadud Memorial Hospital at
a Glance in Case of Seat Rent

Number of Seat : General 200 and Cabin 50


*All amounts are in taka
Expenses
Revenues Profit

Seat Total Seat Total Seat


Total
General Cabin General Cabin General Cabin
Overhea 11,060,947 8,507,238 2,553,70 19,500,00 15,000,00 4,500,00 4,647,02 3,575,98 1,071,043
d 9 0 0 0 4 1
Other 3,792,029 2,916,781 875,248
Total 14,852,97 11,424,019 3,428,95 19,500,00 15,000,00 4,500,00 4,647,02 3,575,98 1,071,043
6 7 0 0 0 4 1
Per seat 190.40 342.90 250.00 450.00 59.60 107.10
Profit-
Margin 23.84% 23.83%

From the above table we see that, in this hospital the per seat expenses for general
bed is tk.190.40 and for cabin is tk.342.90. Against these expenses for per seat is
tk.250 for general bed and tk.450 for the cabin. As a result profit per seat tk.59.60
for the general bed and tk. 107.10 for the cabin. In here we also found that, the rate
of profit of both general and the cabin are almost same, but they earn more in cabin
per day rather than the general beds.
The hospital also has other five source of revenue, which are- outdoor, operation
theater (OT), food and nutrition, laboratory and transportation. Here we find that
profit form outdoor is highest rate (25.84%). The earning form operation theater is
13.82%, from food and nutrition 6.44%, from transportation 17.38%, and from
laboratory 20.56%. But we found that every sector earn with a good rate except the
food and nutrition sector. Because they consider that providing notorious food with
lower cost is a part of their service.

Recommendation

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The Abdul Wadud Memorial Hospital is the one of the familiar private hospital in
Khulna division. The hospital’s management is committed to provide the general
people the world class health service through in less expensive way. We think if
they follow the following recommendation, then they will be benefited according to
our opinion.
We allocate the overhead cost on the basis of weighted revenue. Through our
calculation we found that profit margin of general seat is 23.84%, whereas gross
profit is 21.05%. We think that as a service related organization this profit margin is
all most satisfactory. So we can say that general seat is the major source of their
earnings and we also find that most of the times here stay the crisis of general bed.
So the authority of ‘Abdul Wadud Memorial Hospital’ should increase their number
of general beds with same level of facilities.

In case of cabin, cost per seat is 342.90 taka against revenue 450.00 taka. So they
earn 107.10 taka profit per cabin. But on an average in an effective year 100 days is
vacant. According to our opinion if the authority reduces their revenue per cabin,
then their number of vacancy day may be reduced. As a result the total amount of
profit may be increase.

Conclusion

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Overhead represents the cost of indirect material, indirect labor, and such other
expenses including services as cannot conveniently be charged to a specific unit.

Here, indirect materials reefer to material cost which cannot not be allocated to any
job or processes, but can be apportioned to or absorbed by jobs or processes.
Indirect labor or wages refer to wages other than direct wages, and indirect
expenses are also expenses other than direct expenses. Service departments are
organized to provide some needed service in a single, centralized place, rather than
having all units within the organization provides the service for them. Service
department costs are charged to operating department by an allocation process. In
terms, the operating department includes the allocated costs, form which overheads
are computed for purpose of costing product and services.

References

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Horngren C.T., Foster G. and Datar S. M. (1999). Cost Accounting, 10th edition,
Prentice Hall New Delhi-11001, pp.566-591.

Garrison Ray H., Noreen Eric W., and Brewer Peter C. (2007- 2008). Managerial
Accounting, 11th edition, McGraw- Hill Irwin.pp.716-730.

Jamal, Md. Mahmud, Administrative officer, Abdul Wadud Memorial Hospital

Rony K. Krishno, Administrative officer, Abdul Wadud Memorial Hospital