Question 3.

The Rye Village Clinic provides primary health care to local residents. For costing purposes, the clinic classifies its departments into three operating departments (Clinic, Radiology, and Laboratory) and three support departments (Administration, Housekeeping, and Medical Records). The allocation of Administration costs is based on the percentage of time spent in the department. The allocation of Housekeeping costs is based on floor space. The allocation of Medical Records cost is based on the number of entries to patient files. For the first week of May, the department managers report the following data:

12,110 1,211 13,321

For Admin: Total cost is 250, time spent in percentage is 10, floor space is 1000

For House-Keeping: total cost is 50, time spent in percentage is 10, floor space is 500

For Medical Recors: total cost is 200, time spent in percentage is 20, floor space is 2500, entries to patient files are 500

For Clinic: total cost is 800, time spent in percentage is 30, floor space is 5000, entries to patient files are 2000

For Radiology: total cost is 500, time spent in percentage is 20, floor space is 3000, entries to patient files are 500

For Lab: total cost is 400, time spent in percentage is 10, floor space is 2000, entries to patient files are 1500

Required:

(a) Allocate the three support department costs to the three operating departments using the step-down method. The first ranked support department is Housekeeping first. Round your results to the nearest 10p.

(b) Comment on the difference between direct method and step-down method.