Costing and Cost Allocation , Financial Statement Analysis

1.

The housekeeping services department of Ruger Clinic, a multi-specialty practice in Toledo, Ohio had $100,000 in direct costs during 2015.

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 during 2015 and to support these clinical activities, they used 5,000 hours of housekeeping services.

Required:

a. What is the value of the cost pool?

b. What is the allocation rate if:

(i) Patient services revenue is used as the cost driver

(ii) Hours of housekeeping services is used as the cost driver

c. 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 as follows:

Department	Revenue	Housekeeping Hours
Adult Services	$3,000,000	1500
Pediatric Services	1,500,000	3,000
Other Services	500,000	500
Total	$5,000,000	5,000

d. What is the dollar allocation to each patient services department, if patient services revenue is used as the cost driver?

e. What is the dollar allocation to each patient services department, if hours of housekeeping support are used as the cost driver?

f. What is the difference in the allocation to each department between the two drivers?

g. Which of the two drivers is better? Why?

2. Analyze the Financial statement for Overlay Hospital Attached.

Calculate the financial ratios and write an essay on the following:

What recommendations do you have for the future?

Things that the organization should focus on improving (financially)?

Management recommendations based financial performance of the company (analysis of financial ratios) ?

Conclusion

Briefly describe the findings of each section.