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?

Question

Hayley Daniel

Business

2 February, 10:59

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?

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Answers (1)

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Porter Mendoza · Answer 1

a. $100,000

b. $0.02 per patient services and $20 per housekeeping services hours

Explanation:

a. The value of the cost pool is $100,000 indirect cost only

b. The allocation rate

In the first case, it would be

= Value of the cost pool : patient services revenue

= $100,000 : $5,000,000

= $0.02 per patient services

In the first case, it would be

= Value of the cost pool : housekeeping services hours

= $100,000 : $5,000

= $20 per housekeeping services hours