Posted: May 4th, 2016

Which of the following alternatives should be used as the depreciable life for Crow Co.’s depreciation calculation?

You have been asked by management to explain the variances in costs under your inpatient capitated contract. The following data is provided.
Budget Actual
Inpatient Costs $12,568,500 $16,618,350
Members 42,000 42,000
Admission Rate 0.070 0.095
Case Mix Index 0.90 0.85
Cost per Case (CMI = 1.0) $4,750 $4,900

Costs per case increased to $4,900 from a budgeted value of $4,750. This increased actual total costs by what amount?

Crow Co. purchased some of the machinery of Hare, Inc., a bankrupt competitor, at a liquidation sale for a total cost of $33,600. Crow’s cost of moving and installing the machinery totalled $3,200. See the data in the attached file.

Required:

a) Calculate the amount that should be recorded by Crow Co. as the cost of each piece of equipment.
b) Which of the following alternatives should be used as the depreciable life for Crow Co.’s depreciation calculation? Explain your answer.
– The remaining useful life to Hare’s, Inc
– The life of a new machine
– The useful life of the asset to Crow Co.