Question

Franklin Health Care Center, Inc. has three clinics servicing the Seattle metropolitan area. The company’s legal services department supports the clinics. Moreover, its computer services department supports all of the clinics and the legal services department. The annual cost of operating the legal services department is $511,900. The annual cost of operating the computer services department is $318,200. The company uses the number of patients served as the cost driver for allocating the cost of legal services and the number of computer workstations as the cost driver for allocating the cost of computer services. Other relevant information follows.

	Number of		Number of
	Patients		Workstations
Sewell clinic	6,200		20
Alphretta clinic	6,000		12
Gwinnett clinic	6,800		7
Legal services			4
Computer services			19

Required

1. Allocate the cost of computer services to all of the clinics and the legal services department.

2. After allocating the cost of computer services, allocate the cost of legal services to the three clinics.

3. Compute the total allocated cost of service centers for each clinic.

Answer 1

Requirement (a):

Annual cost of Operating Computer Service Department = $318,200

Number of workstations in three clinics and legal service department = 20 + 12 + 7 + 4 i.e. 43 workstations

Accocation Rate of Computer Department = Annual Cost / Number of Workstations

= $318,200 / 43 workstations

= $7,400 each workstations

Computer Department Cost allocated to:

Sewell Clinic : 20 workstations * $7,400 each workstation : $148,000

Alphretta Clinic : 12 workstations * $7,400 each workstation : $88,800

Gwinnett Clinic : 7 workstations * $7,400 each workstation : $51,800

Legal Department : 4 workstations * $7,400 each workstation : $29,600

Requirement (b):

Cost in Legal Service Department = Annual Operating Cost of Legal Department + Cost allocated from Computer Department

= $511,900 + $29,600

= $541,500

Number of patients in three clinics = 6,200 + 6,000 + 6,800 i.e. 19,000 patients

Cost allocation rate of Legal Service Department = Cost in Legal Service Department / Total number of patients

= $541,500 / 19,000 patients

= $28.50 per patient

Legal Service Department Cost allocated to:

Sewell Clinic : 6,200 patients * $28.50 per patient : $176,700

Alphretta Clinic : 6,000 patients * $28.50 per patient : $171,000

Gwinnett Clinic : 6,800 patients * $28.50 per patient : $193,800

Requirement (c):

	Computer Service	Legal Service	Sewel Clinic	Alphretta Clinic	Gwinnett Clinic
Annual Cost	$             318,200	$ 511,900
Allocation of Computer Service Cost	$           -318,200	$           29,600	$ 148,000	$            88,800	$           51,800
Allocation of Legal Service Cost		$ -541,500	$ 176,700	$ 171,000	$ 193,800
Total cost allocated	$ -	$                    -	$ 324,700	$ 259,800	$ 245,600