Jade Soon, the administrator of Saint Jude Hospital, is 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 kilograms processed for all departments, or $0.35 per kilogram.

Soon is concerned that government health-care officials will require weighted statistics to be used for cost allocation. She asks you, “Please develop a revised base for allocating laundry costs. It should be better than our present base, but should 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 require unusual handwork.

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

Ignore the special requirements of the 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.