Half of One $12K Master S of Social Work (MSW) Working Outside the Department=$6K

Question #1

As we discussed last night, I had one last trick up my sleeve and it turned out to be the right one. The solution was in how you separate the non-revenue vs. revenue portions of the social services and nursing departments. You add a non-revenue cost center for both departments, but only allocate the cost of the employees working outside of their normal departments. You leave the existing revenue cost center where it is, but with a reduced manpower cost plus department overhead. You'll see on the Question #1 Tab that I added columns H and I for the Non Rev Social and Non Rev Nursing cost centers. Accordingly, I added rows 8, 9, 28, 29. All of the normal cost distributions remained the same except for administration (row 4) where now a portion of the salaries of the social workers and nurses are charged to the non-revenue cost centers. Specifically, the $32K for three social workers and $27K for three nurses are allocated as follows:

· Half of one $12K Master’s of Social Work (MSW) working outside the department=$6K

· All of the $8K BA social worker working outside the department=$8K

o Total of $20K in Cell H4

· Half of one $12K Master’s of Social Work (MSW) working inside the department=$6K

o Total of $12K in Cell O4

· All of one $9K nurse working in Adult Medicine=$9K

· Half of one $9K nurse working in Family Planning=$4.5K

· Half of one $9K nurse working in Pediatrics=$4.5K

o Total of $18K in Cell I4

· All of one $9K nurse working in Nursing=$9K

o Total of $9K in Cell M4

The Non Rev Social cost center (Row 8) is similarly allocated as follows:

· All of the social workers working outside of the department are evenly split amongst the six other departments (not Social Services or Dental). Each cell (J8, K8, L8, M8, N8, P8) has the value of 1/6

The Non Rev Nursing cost center (Row 9) is similarly allocated as follows:

· One of the two nurses is in Adult Medicine, so 50% is allocated to cell L9. The other nurse splits her time between Family Planning and Pediatrics, so 25% is allocated to both cells J9 and K9

The Social Services and Nursing revenue centers (green) get their normal allocation of 100% just like all revenue centers.

The last little twist is to enter the cost of these two new Non Rev cost centers in row 20. You’ll see in cells H20 and I20 the salaries for the Social Workers ($20K) and Nurses ($18K). These costs will now get Stepped-Down and charged against the revenue centers just like all the other overhead costs. Accordingly, the costs for the Revenue cost centers for Social Services and Nursing are decremented by the same amount and are now:

· Social Services: $40K-$20K=$20K

· Nursing: $33K-$18K=$15K

After all’s said and done, we finally get the expected cost for the Adult Medicine Clinic to be $47.51 per patient visit.

Note: I got VERY close ($47.34) to this number when I first added the Non Rev Cost Centers, but as I read in Accounting literature, it does matter in what order you do the Step-Down (i.e. Rent first or Utilities first, etc.), so I had to experiment in adjusting the order until $47.51 was the number. I have NO idea what would drive a particular order; I just know that this order worked.

Question #2

After getting question #1 answered, it only took about five minutes to get #2 answered. I did three things:

· I eliminated the Non Rev Social Services Column and Rows and reallocated all $32K of the salaries back to cell M5 to account for the Administration Cost Center.

· I Moved the Lab Work Non Rev Column all the way to the right and changed to color to green. I also moved the corresponding row down after Dental and changed the color to green. I deleted the Lab Work row on the bottom part where the Step-Down calculations are done.

· As I said in Question #1, the order of the Step-Down matters and the initial cost of one Lab hour came to $8.78. I changed the order of the cost centers and got lucky after one adjustment (switched Admin and Cleaning) when the Lab cost per hour dropped a penny to $8.77 as was desired.

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