Reference no: EM13502192

The Adelaide Private Hospital has 3 patient services departments - Adult Medicine, Obstetrics and Pediatrics. It also has 3 patient support departments - administration, Facilities and Finance.

The revenues of the three patient services departments are:

Adult medicine $12 million

Obstetrics $6 million

Pediatrics $2 million

The direct costs of all 6 departments are:

Adult medicine $6 million

Obstetrics $3.6 million

Pediatrics $1.2 million

Administration $1 million

Facilities $4.4 million

Finance $1.8 million

Direct costs of the support departments are allocated to patient services departments using the direct method on the basis of the % of services provided by the support departments to the patient service departments.

Table 1 below gives the percentages of support provided by the support departments to both each other and the services departments. For example, 10% of admin's services are provided to the finance department and 20% to obstetrics.

Table 1

	% of services provided by
Services provided to	Admin	Facilities	Finance
Admin	0	5	5
Facilities	10	0	5
Finance	10	10	0
Adult Medicine	35	55	50
Obstetrics	20	10	25
Pediatriacs	25	20	15
Total	100	100	100

a. Allocate the support department overheads to the 3 patient service departments on the basis of the % of services provided.

b. Calculate the profit and loss position for each of the patient service departments and the hospital as a whole.

c. Should the hospital consider closing down any or all of the patient service departments to increase its profitability or reduce its losses? Explain why or why not.