Rio Grande Medical Center Case Study

Case Study 3 Rio Grande Medical sum of money-Cost Allocation Concepts 1) Is it fair for the Dialysis Center to suffer (in profitability) from the range even though it had nothing to do with it? I do not think that the Dialysis Center suffering in profitability from the move is fair. Being that the Dialysis Center was moved as a result of the Outpatient Clinics need for extra space, I do think that most of the make up of the new building and the relocation of the Dialysis Center should be paying(a) through the Outpatient Center (a buy out).The fact that the indirect cost of the Dialysis Center are going up solely because of the fact that they were strained out to accommodate the Outpatient Center, forcing them into the red, is simply unfair and bad practice. 2) Should the Dialysis Center be charged actual facilities costs for its new location? After all, the move was forced by the Outpatient Clinic, which is being charged for facilities at the lower fair(a) allotment rate.Un der the concept of charging for actual facilities costs, department heads may be give way polish off resisting proposed moves to new (and potentially much efficient) facilities because such moves would result in improverd facilities allocations. Without the expansion, the Dialysis Center was paying $300,000 in facilities costs ($15 per unanimous foot x 20,000 square feet). With the expansion, the Dialysis Center is paying $400,000 in facilities costs, $100,000 more solely because of the move forced upon them due to the Outpatient Centers need for more space.I cogitate that the Dialysis Center should pay the same amount in facilities costs considering that they would view as the same amount of square footage as they did before the move. All or at least a portion of the additional $100,000 in facilities costs should be absorbed by the Outpatient Center, not only did they force the Dialysis Center out, but they also have an expected 25 percent increase in volume while the Dialys is Center is expected to have no increases at all. 3)Even if the true cost concept were applied to the Dialysis Center, is the 400,000 annual allocation amount correct? After all, the building has a useful life sentence that is probably significantly longer than 20 years the life of the contribute used to determine the allocation amount. If the true cost concept is applied, what would be the allocation in the 21st year, after the mortgage had been paid off? 4) The revenue that the Dialysis Center receives from patient use of the pharmacy appears to be passed on directly to the pharmacy.That is, the Dialysis Center books $800,000 in annual revenue but wherefore is charged $800,000 for the drugs used. Should this revenue be counted when general overhead allocations are do? To make this point, John discovered that the pharmacy supplies used for dialysis actually cost the pharmacy $400,000, so the pharmacy makes a profit of $400,000 on drugs that are actually sold by the Dialysis C enter.