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Housekeeping Service of Ruger Clinic

In: Business and Management

Submitted By lilrue38st
Words 281
Pages 2
The Housekeeping Service department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs in 2007. 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 in 2007, and to support these clinical activities, they used 5,000 hours of housekeeping services.

1. What is the value of the cost pool?
The value of cost pool is 100,000

2. What is the allocation rate if:? a. Patient services revenue is used as the cost driver?
Allocation Rate = Cost / Patient service revenue = 100,000 / 5,000,000 = 0.02 per patient service revenue b. Hours of housekeeping services is used as the cost driver?
Allocation Rate = Cost / Book keeping service = 100,000 / 5,000 = 20 per housekeeping hours

3. What is a cost-volume-profit(CVP) analysis and why is it useful to health services managers?
Cost-volume-profit analysis is a simple but flexible tool for exploring potential profit based on cost strategies and pricing decisions. While it may not provide detailed analysis, it can prevent "do-nothing" management paralysis by providing insight on an overview basis.
Even entities without a profit goal find CVP useful. Governmental agencies use the analysis to determine the level of service appropriate for projected revenues. Nonprofit agencies, increasingly stipulating fees for service, can explore fee-pricing options; in many cases, the recipients are especially price-sensitive due to income or health concerns. The agency can use CVP to explore the options for efficient allocation of…...

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