Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. Required:
For each of the following costs incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object

Cost Cost Object Direct cost/indirect Cost

Ex. Catered food served to patients A particular patient
The wages of pediatric nurses The pediatric department
Prescription drugs A particular patient
Heating the hospital The pediatric department
The salary of the head of pediatrics The pediatric department
The salary of the head of pediatrics A particular pediatric patient
Hospital chaplain's salary A particular patient
Lab tests by outside contractor A particular patient
Lab tests by outside contractor A particular department

   Cost and Cost object / Explanation

a. The wages of pediatric nurses/The pediatric department

The wages of pediatric nurses are the costs and the pediatric department is the cost object and are directly related to each other. Wages is an element of direct cost. The wages of pediatric nurses relating to the pediatric department are Direct costs.

b. Prescription drugs / A particular patient

The prescription drugs are the costs and a particular patient is the cost object. The prescription drugs are direct costs as such costs are directly attributable to the treatment of a particular patient. This cost is incurred in direct proportion to the requirement of the pediatric patient.

c. Heating the hospital / The pediatric department

The cost of heating the hospital is an indirect cost as it is not directly required for the treatment of the pediatric patient. The cost of heating the hospital is to be incurred irrespective of the number of patients. It is a fixed cost and is not related to the level of activity.

d. The salary of the head of pediatrics / The pediatric department

The expenses of pediatric department are dependent upon the number of pediatric patients as it is the principal source of revenue for the department. The salary of the head of pediatrics relating to the pediatric patient is directly related to the number of pediatric patients. Thus, it is a direct cost.

e. The salary of the head of pediatrics / A particular pediatric patient

The treatment of the particular patient involves certain fixed or variable costs. The salary of the head of pediatrics is not directly relevant for the treatment of the particular patient. Thus, it is an indirect cost.

f. Hospital chaplain's salary / A particular patient

Hospital chaplain’s salary relating to a particular patient is not directly related to the patient. It is an indirect cost as it is a period cost or fixed cost. It has to be incurred irrespective of the number of patients.

g. Lab tests by outside contractor / A particular patient

Lab test is for the treatment of a particular patient due to which it is considered as a direct cost for the hospital. Lab tests by outside contractor relating to a particular patient is a direct cost as the nature of the expense is variable.  

h. Lab tests by outside contractor / A particular department

This cost is a direct cost as it relates to a particular department and not the entire hospital. Lab tests by outside contractor relating to a particular department is a direct cost as the nature of the expense is variable.

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