The Housekeeping Services Department of Ruger Clinic, a multispecial.pdf

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The Housekeeping Services Department at Ruger Clinic had $100,000 in direct costs that need to be allocated to the clinic's three revenue-generating patient services departments. Two potential cost drivers are the departments' total $5 million in annual revenue or their total 5,000 hours of housekeeping services used. The cost pool value is $100,000 and the allocation rates would be $100,000/$5,000,000 = $0.02 per dollar of revenue or $100,000/5,000 hours = $20 per hour of housekeeping services used.

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The Housekeeping Services Department of Ruger Clinic, a multispecialty practice in Toledo,
Ohio, had $100,000 in direct costs during the year. These costs must be allocated to Rugers 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 a total of $5 million in revenues during the year. To
support these clinical activities, the departments used 5,000 total hours of housekeeping services.
a. What is the value of the cost pool? b. What is the allocation rate if (1) patient services revenue
is used as the cost driver and if (2) hours of housekeeping services are used as the cost driver?

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