Refer to problem 6.1. Assume that the three patient services departments are adult services, pediatric services, and other services.

The patient services revenue and hours of housekeeping services for each department are as follows:

a. What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver?

b. What is the dollar allocation to each patient services department if hours of housekeeping support is used as the cost driver?

c. What is the difference in the allocation to each department between the two drivers?

d. Which of the two drivers is better? Why?

Problem 6.1

The housekeeping services department of Ruger Clinic, a multispecialty practice, had $100,000 in direct costs in 2020.
These costs must be allocated to Ruger’s three revenue-producing patient services departments using the direct method. Two cost drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenues during 2020, and to support these clinical activities, they used 5,000 hours of housekeeping services.

a. What is the value of the cost pool?

b. What is the allocation rate if:
• patient services revenue is used as the cost driver?
• hours of housekeeping services is used as the cost driver?

Transcribed Image Text:

Department Adult services Pediatric services Other services Total Revenue $3,000,000 Housekeeping Hours 1,500 1,500,000 3,000 500,000 500 $5,000,000 5,000