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?