Problem
The housekeeping services department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs during 2015. 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 during 2015, and to support these clinical activities, they used 5,000 hours of housekeeping services.
I. What is the value of the cost pool?
II. What is the allocation rate if
i. Patient services revenue is used as the cost driver?
ii. Hours of housekeeping services is used as the cost driver?