Reference no: EM13826065

Problem:

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.

1. Allocate the support department overheads to the 3 patient service departments on the basis of the % of services provided.
2. Calculate the profit and loss position for each of the patient service departments and the hospital as a whole.
3. 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.

Additional Information:

This question is basically belongs to Finance as well as it explains about computing profit and loss position and closing down any departments to increase profitability in a hospital.