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Innocent, Unaware Third-Parties

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“Ruger Clinic”

Healthcare Finance – HSA525:

An Introduction to Accounting and Financial Management

May 1, 2011

Instructor Feedback Grade: 320 out of 320; Comments: Hi, Excellent job on the Ruger Clinic assignment.

Abstract

This paper discusses the following topics: value of the cost pool; The Housekeeping Service department of Ruger Clinic scenario; cost-volume-profit (CVP) analysis; capitation rates: fee-for-service approach; cost approach, and demographic approach, and conventional versus zero-based budgeting. Key words: cost pool value, cost-volume-profit (CVP) analysis; capitation rates: fee-for-service; cost, and demographic approaches, and conventional versus zero-based budgeting.

Ruger Clinic

1. What is the value of the cost pool? A cost pool is “a grouping of costs that must be allocated” (Gapenski, pg 165) but “it may be beneficial to separate the costs of that support department into multiple pools” (Gapenski, pg 166) if services of the support department differ substantially. For our scenario the value of the cost pool is $100,000 in direct total costs of the Housekeeping Services department.

2. What is the allocation rate if: a) Patient services revenue is used as the cost driver? The formula for the allocation rate when patient services is used as the cost driver looks like this: Patient Services Revenue: $100,000 (direct costs) / $ 5,000,000 (patient revenue) = $0.02 per revenue dollar (allocation rate). Per Gapenski on page 177, “The patient services department heads are being fairly charged for Housekeeping services, and more importantly, patient services managers can take actions to lower the allocated amounts by reducing the amount of these services used.” b) Hours of housekeeping services is used as the cost driver? The formula for the allocation rate

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