The Housekeeping Service department of Ruger Clinic is a multispecialty practice in Toledo, Ohio. Direct costs in 2007 aggregated to $100,000. These costs must be allocated to Ruger's three revenue-producing patient services departments using the direct method. Two cost drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenues in 2007, and to support these clinical activities, they used 5,000 hours of housekeeping services.
Ruger's Clinic over a 12-month operating cycle accumulated direct and variable costs. The value of the cost pool us $100,000 and is a function of two cost drivers, patient services revenue and hours of housekeeping services. Patient services and housekeeping equally contributed to the cost pool at a monthly cost of $4,167.67.
The cost allocation rate is ratio of revenue or cost into the number of labour hours. When patient services...
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