The Housekeeping Services department of Ruger Clinic, a multispecialty practice

Question

The Housekeeping Services department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 indirect costs during 2007. 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 department sgenerated $5millionin totalrevenues during 2007, and to support these clinical activities, they used 5,000 hours of housekeeping services.

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

Explanation / Answer

Here the cost pool = $100000 (All the indirect cost) If patient services revenue is used The allocation rate = $100000 / 5000000 = $0.02 per patient service If hours of housekeeping services isused as the cost driver allocation rate = $100000 / 5000 =$20 per housekeeping hour

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