Emilio Moreno, the administrator of Turin Community Hospital, has become interested in obtaining more accurate cost allocations on the basis of cause and effect. The €210,000 of laundry costs had been allocated on the basis of 600,000 kgs processed for all departments, or €.35 per kg.

Moreno is concerned that government healthcare officials will require weighted statistics to be used for cost allocation. He asks you, ‘Please develop a revised base for allocating laundry costs. It should be better than our present base, but not be overly complex either.’

You study the situation and find that the laundry processes a large volume of uniforms for student nurses and physicians and for dietary, housekeeping and other personnel. In particular, the coats or jackets worn by personnel in the radiology department take an unusual amount of handwork.

A special study of laundry for radiology revealed that 7,500 of the 15,000 kgs were jackets and coats that were five times as expensive to process as regular laundry items. Several reasons explained the difference, but it was principally because of handwork involved.

Assume that no special requirements were needed in departments other than radiology. Revise the cost-allocation base and compute the new cost-allocation rate. Compute the total cost charged to radiology using kilograms and using the new base.