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appropriate cost driver to calculate employee bonuses

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appropriate cost driver to calculate employee bonuses essay assignment

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Student response
Student#1
I don’t feel this would be an appropriate cost driver to calculate employee bonuses for a Critical Care department if this was the only cost driver being used. Financial performance in a patient care unit is not going to be as dependent on a fixed cost such as square footage as it will be on services delivered or supplies utilized. Square footage, being more of a fixed cost would be looked at in the cost pool of support services and breaking down the individual costs of those services for each department. The housekeeping scenario used in the textbook is a good example of this. The cost driver that involves housekeeping in the example is, does a department 10,000 square feet of space use twice the amount of housekeeping services as a department with only 5,000 square feet of space. This in my opinion will not have an effect on employee bonuses as it will have been predetermined information and not significant to how well the department has performed day to day financially.

Student#2

As the department head at Mercy Hospital, I would not agree that square footage is an appropriate cost driver for employee bonuses. Reason being; a larger square footage does not necessarily equal larger profit for the company. Consider two separate units of the same level of care: a 20-bed unit utilizes approximately 5,000 square feet and the other unit houses 40 beds (semi-private) at the same 5,000 square feet. With all things being equal (patient care, occupancy, supply cost, employee wages, etc…), the 40 bed unit will always be more profitable based on shear volume (beds and capability). Using square footage as the primary cost driver for providing employee bonuses, I believe, does not fairly or justifiably indicate the departments profitability. A more reasonable and accurate cost driver would be perhaps, number of hours worked by the nursing staff. This would be a good indication of how well the department utilizes their nursing staff in relation to the patient census.

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