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