The Facilities Department of Teton Orthopaedics & Sports Clinic had $200,000 in

Question

The Facilities Department of Teton Orthopaedics & Sports Clinic had $200,000 in direct costs last year. These costs must be allocated to the clinic’s three patient services departments using the direct allocation method. Two cost drivers are under consideration: patient services revenue and maintenance hours (which includes housekeeping and routine maintenance). Assume the following about the profit centers:

Question 34 (6 points)

Use this data for the Teton Orthopaedics & Sports Clinic (click the link to see the data) to answer the question below.

Answer all parts of the question and please label your answers clearly.
a What is the Cost Pool?(2 points)
b What is the allocation rate for patient services revenue? (2 points)
c What is the allocation rate for maintenance hours? (2 points)

Department Revenue Maintenance Hours General Orthopaedics $4,000,000 2000 Physical Therapy $2,000,000 4000 Other Services $1,000,000 1000 Total $7,000,000 7000

Explanation / Answer

A. Cost Pool is the grouping of the cost and made to allocate the cost between the department or the swervices on the basisi of the item used from Cost pool and what is rate of that in cost pool.

B Allocation rate for Patient Service Revenue = Total Direct Cost / Total Revenue

= $ 200,000 / $ 7,000,000

= 0.02857 for every doller revenue

C. Allocation rate for maintenance Hours = Total Direct Cost / Total Maintance Hours

= $ 200,000 / 7000 Hours

= $ 28.57 Per hour

C.

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