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Allocation of Costs
the following scenario: Jump Hospital currently allocates all
maintenance department costs based on departmental square feet.
However, the manager of the pharmacy department has suggested that an
ABC approach be used for the portion of the maintenance department costs
that relate to repairing equipment. Her contention is that the
pharmacy has relatively little equipment that breaks. However, it must
subsidize many high-tech departments that require expensive equipment
repairs. Using the tables below, calculate the maintenance cost
assigned to the pharmacy using the existing method and using an ABC
approach. Clearly label your calculations in your analysis. Respond to
at least two of your classmates’ postings.
Volume (Square Feet)
All Other Departments
Volume of Repairs
Hours of Repairs
Supplies Used for Repairs
following scenario: Duncombe Village Golf Course is considering the
purchase of new equipment that will cost $1,200,000 if purchased today
and will generate the following cash disbursements and receipts. Should
Duncombe pursue the investment if the cost of capital is 8 percent?
Why? Clearly label your calculations in your analysis. You must
respond to at least two of your classmates’ postings to receive full