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.
You are to write a 3-5 page report that answers the following:
1. What is the value of the cost pool?
2. What is the allocation rate if: a. Patient services revenue is used as the cost driver?
b. Hours of housekeeping services is used as the cost driver?
3. What is a cost-volume-profit (CVP) analysis and why is it useful to health services managers?
4. Compare and contrast the following three methods of developing capitation rates: fee-for-service approach; cost approach; and demographic approach.
5. What are the advantages and disadvantages of conventional budgeting versus zero-based budgeting?