Lakewood Clinic (overhead allocation) The housekeeping services department of La
ID: 2426603 • Letter: L
Question
Lakewood Clinic (overhead allocation) The housekeeping services department of Lakewood Clinic, a multispecialty practice in Cleveland, Ohio, had $200,000 in direct costs during 2011. These costs must be allocated to three revenue-producing patient services departments using the direct method. Two costs drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $10 million in total revenues during 2011, and to support these clinical activities, they used 4,000 hours of housekeeping services.
1.What is the value of the cost pool?
2. What is the allocated rate if:
patient services revenue is used as the cost driver?
hours of housekeeping services is used as the cost driver?
Problem 6.2 Refer to Lakewood Clinic Assume that the three patient services departments are adult services, pediatric services, and other services. The patient services revenue and hours of housekeeping services for each department are:
Department Revenue Housekeeping Hours
Adult Services $3,200,000 1,600
Pediatric Services 1,400,000 2,800
Other Services 400,000 600
Total $5,000,000 5,000
What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver?
Explanation / Answer
The Value of Cost Pool = $200000
Allocated rate if Patient services revenue used as a Cost Driver
Allocation Rate = Cost/ Patient Service revenue
= $200000/$10000000
= .02 per Patient Service revenue
Allocated rate if Hours House Keeping Service used as a Cost Driver
Allocation Rate = Cost/ Hours House Keeping Service
= $200000/4000
= 50 per House keeping Hours
6.2
Dollar Allocation to Each Patient Service department if patient services revenue is used as the Cost Driver
Adult Services = $3,200,000*.02 =$64000
Pediatric Services = $1,400,000*.02 =$28000
Other Services = $400000*.02 =$8000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.