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