House Keeping Department of Ruger Clinic Essay

1193 Words5 Pages
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? A cost pool consists of all the direct costs of one support department. In this case, the House keeping department of Ruger Clinic had $100,000 as total budgeted costs for
…show more content…
It helps managers a lot in evaluating future courses of action regarding pricing and the introduction of new services. CVP analysis or Breakeven is used to compute the volume level at which total revenues are equal to the total costs. When total costs and total revenues are equal, the organization is said to be “breaking even”. Managers can utilize P&L statements which are used to project profit or net income. P&L statements can be developed to serve decision making purposes. These can be created for any subunit within an organization, whereas income statements are created only for the overall accounting entity. Break even analysis contains important assumptions and is very essential to the managers to determine whether assumed values can be realistically achieved. Managers can perform CVP analysis to plan future levels of operating activity and provide information about:
• Which services to emphasize
• Volume of sales needed to achieve a targeted level of profit
• The amount of revenue required to avoid losses.
• Whether to increase fixed costs
• How much to budget for discretionary expenses.
• Whether fixed costs expose the organization to an unacceptable level of risk
Managers use the degree of operating leverage to gauge the risk associated with their cost function and to explicitly calculate the sensitivity of profits to changes in sales. Managers need to consider the degree of operating leverage when they decide whether to incur additional fixed

    More about House Keeping Department of Ruger Clinic Essay

      Get Access