6.1 The housekeeping services departments of Ruger Clinics, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs during 2015. These costs must be allocated to Ruger's three revenue - producing patient services departments using the direct method. Two cost drivers are under considerations: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenue during 2015 and to support these clinical activities, they used 5,000 hours of housekeeping services.

a. What is the value of the cost pool?

b. What is the allocation rate if

1. Patient service is used as the cost driver 2. Hours of housekeeping services is used as the cost driver?

6.2 Refer to problem 6.1 Assume that the three patient services departments are adult services, pediatrics services, and other services. The patient services revenue and hours of housekeeping services for each department are as follows:

Departments

Revenue

Housekeeping Hours

Adult Services

$3,000,000

1,500

Pediatric services

1,500,000

3,000

Other Services

500,000

500

Total

$5,000,000

5,000

a.What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver?

b.What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver?

c.What is the difference n the allocation to each department between the two drivers?

d.Which of the two drivers is better? Why?

6.1 The housekeeping services departments of Ruger Clinics, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs during 2015. These costs must be allocated to Ruger's three revenue - producing patient services departments using the direct method. Two cost drivers are under considerations: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenue during 2015 and to support these clinical activities, they used 5,000 hours of housekeeping services. a. What is the value of the cost pool? b. What is the allocation rate if 1. Patient service is used as the cost driver 2. Hours of housekeeping services is used as the cost driver? 6.2 Refer to problem 6.1 Assume that the three patient services departments are adult services, pediatrics services, and other services. The patient services revenue and hours of housekeeping services for each department are as follows: Departments Adult Services Pediatric services Other Services Total Revenue $3,000,000 1,500,000 500,000 $5,000,000 Housekeeping Hours 1,500 3,000 500 5,000 a. What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver? b. What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver? c. What is the difference n the allocation to each department between the two drivers? d. Which of the two drivers is better? Why