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Financial Accounting


Question4 (15 marks) The Prince Alfred Hospital’s projected revenue and costs for the 2015 financial year – ending 30 June - are as follows: Projected revenues and costs by patient services departments: Revenues Costs (direct) Routine care $30 million $15million Laboratory $10 million $8 million Radiology $6 million $3 million Overhead costs from the support departments in the Hospital are: Financial services $3 million Maintenance $5 million Housekeeping $2 million Administration $4 million Personnel $4 million The agreed cost drivers for the support departments are: Financial Services patient revenue Maintenance space utilisation Housekeeping labour hours Administration salary dollars Personnel salary dollars The following information relates to the patient services departments: Department Space utilisation Labour hours Salary dollars Routine care 199,800 sq.m. 76,000 $10 million Laboratory 39,600 sq.m. 6,000 $3 million Radiology 61,200 sq.m. 9,000 $2 million Total 300,600 91,000 $15 million 1. What is the Hospital’s projected profit or loss for the year? 2. Allocate indirect costs to the patient services departments on the basis of the cost drivers specified. 3. Do you think that the allocation method used was appropriate? Explain why or why not? Are all the patient services departments profitable? If not, should they be closed down?