Financial management

Analyze 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.

 

 

 

Maintenance Costs

 

Routine Maintenance

Repairs

Total

Volume (Square Feet)

100,000

800

 

Labor Hours

10,000

4000

14,000

Labor Cost/Hour

$12.00

$18.00

$13.71

Supplies

$20,000

$80,000

$100,000

Administration

   

$15,000

 

 

Department Information

 

Pharmacy

All Other Departments

Total

Square Feet

2,000

98,000

100,000

Volume of Repairs

3

797

800

Hours of Repairs

6

3,994

4,000

Supplies Used for Repairs

$200

$79,800

$80,000

 

 Analyze the 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 credit.

Year

Cash Receipts

Cash Disbursements

Net Cash Flow

1

1,000,000

500,000

500,000

2

925,000

475,000

450,000

3

800,000

450,000

350,000

4

750,000

430,000

320,000

 

 

 

 

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