Bill is a new employee with Regional Community Hospital, he is interested in making a good impression and showing the Finance group, as well as his own dept chair in Radiology what he can do. With Bills recently assigned position on the Finance review committee, he has the opportunity to make some significant changes to the current cost allocation method that RCH is using. The following are a list of changes that Bill would like to see incorporated. Bill believes these changes will help the overall financial position for RCH, as well as the financial position for Bills home dept, the Radiology unit. Below are the changes that Bill is proposing.

• If no changes were made to the current cost allocation methodology, what would overall support unit costs have to be reduced to, so that the Radiology Dept could breakeven?
• If no changes were made to the current cost allocation methodology, what is the maximum % of support unit services that Radiology can take on and still breakeven?
• Add the Womens Health Unit as an income producing unit for the RCH?
• Add the $60k direct cost for the accounting position, and relieve the Radiologys dept of 100 accounting entries, 15 computers, and 4,000 sqft of occupied space.
• For the Radiology Dept identify the cost drivers that are the most sensitive. (in other words, which improvements in support unit costs usage will have the biggest impact on the Radiology Depts bottom line
• If RCH stops using Revenue as a cost driver for the HR Support Cost Pool, what would be the most profitable cost driver for the Dept of Radiology to have adopted?

Write a report on the current cost allocation results. You will put yourself in Bills shoes, and work to make changes in the current cost allocation methodology that will help RCH, and specifically the Radiology Dept. A spreadsheet is provided to help guide you through this and to assist you answer the necessary questions associated with the case.

Base cost allocation

Revenue		6,500,000	2,400,000	3,800,000		8,300,000	10,250,000	4,800,000	3,250,000	36,900,000
Direct Expenses
	Salaries and Benefits	3,800,000	400,000	1,300,000		4,500,000	4,200,000	1,800,000	1,100,000	16,700,000
	Non Salary Expenses	1,000,000	250,000	600,000		1,800,000	2,400,000	650,000	520,000	6,970,000
	Total Direct Expenses	4,800,000	650,000	1,900,000		6,300,000	6,600,000	2,450,000	1,620,000	23,670,000
Indirect Expenses (Overhead)			650,000
	Information Technology									-
	Human Resources									-
	Accounting and Finance									-
	Procurement									-
	Facilities Dept									-
	Executive and President Office									-
	Total Indirect Expenses	-		-		-	-	-	-	-
	Profit (Loss)	1,700,000	1,750,000	1,900,000		2,000,000	3,650,000	2,350,000	1,630,000	13,230,000
	Cost Driver Data
				# Computer		# Employees	# Accounting	Yearly Purchase	Total Sqft	Revenue produced
				Per Dept		Per Dept	Entries Dept	Orders by Dept	Per Dept	per Dept
	Radiology			45		12	240	85	24,000	6,500,000
	Pharmacy			14		15	180	60	16,000	3,800,000
	Oncology			58		28	310	66	36,000	8,300,000
	Cardiology			46		36	350	45	42,000	10,250,000
	Vascular			15		12	160	75	18,000	4,800,000
	Rehabilitation			25		14	175	45	14,000	3,250,000
	Total cost driver data			203		117	1,415	376	150,000	36,900,000
	Cost Pools and Associated Costs
	Information Technology		3,200,000
	Human Resource		1,800,000
	Accounting and Finance		2,300,000
	Procurement		1,400,000
	Facilities		2,400,000
	Executive and Presidents Office		1,600,000
	Total Cost from Support Units		12,700,000
	Cost Drivers		Cost Pools
	Number of Computers		Information Technology
	Number of Employees		Human Resources
	Annual number of Accounting Entries		Accounting Finance Dept
	Number of Purchase Orders Created		Procurement
	Square Footage Occupied		Facilities
	Revenue Produced		Executive and Presidents Office
	Additional Dept Proposed
	Women's Health Dept
	Revenue		2,400,000
	Direct Expenses
		Salaries and Benefits	400,000
		Non Salary Expenses	250,000
		Total Direct Expenses	650,000
				# Computer		# Employees	# Accounting	Yearly Purchase	Total Sqft	Revenue produced
				Per Dept		Per Dept	Entries Dept	Orders by Dept	Per Dept	per Dept
				22		8	160	34	18,000	2,400,000