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Question - Albany Clinic has 2 support departments and three patient services departments. The direct cost of each of the support departments are as follows:
Administration $2,500,000
Maintenance 1,200,000
These costs must be allocated to Albany Clinic's 3 revenue producing departments. Two cost drivers are under consideration: patient services revenue and square footage. Selected data for the 3 patient services departments are as follows:
Patient Services Department
Patient Revenue
Space (square feet)
Routine Care
$25,000,000
500,000
Intensive Care
$11,000,000
35,000
Ambulatory Care
$1,500,000
175,000
Total for Revenue depts
$37,500,000
710,000
Assume the Clinic uses the direct method for cost allocation.
1. What is the cost pool?
2. What is the allocation rate if: (1) patient service revenue is used as the cost driver; (2) square footage is used as the cost driver?
3. What is the dollar allocation to each patient services department if patient services revenue is used as the cost driver?
4. What is the dollar allocation to each patient services department if square footage is used as the cost driver?
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