Reference no: EM133106027

Question 1 - The housekeeping department of Ruger Clinic, a multispecialty practice, had $100,000 in direct costs in 2020. These costs must be allocated to Ruger's three revenue-producing patient services departments. Two cost driver are under consideration: patient services revenue and hour of housekeeping services used. The patient services departments generated $5 million in total revenues during 2020, and to support these clinical activities, they used 5,000 hours of housekeeping services.

Required -

a. What is the value of the cost pool?

b. What is the allocation rate using patient services revenue as the cost driver?

c. What is the allocation rate using housekeeping hours as the cost driver?

Question 2 - Triangle Health Center currently provides 1,000 visits per year at a price of $50 per visit. The variable cost per visit (variable cost rate) is $30, and total fixed costs are $15,000. The business manager suggests that the center can increase the number of visits to 1,200 per year by cutting the price per visit by $5 and increasing the fixed advertising budget by $5,000.

Projected Visits 1,000

Price per visit $50

Variable cost per visit $30

Fixed costs $15,000

Required -

a. Construct the base case projected P&L statement based on initial projections with no change.

b. Construct the base case projected P&L statement incorporating the changes suggested by the manager.

c. What level of volume (# of visits) is needed for the clinic to breakeven after incorporating the changes?