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Question

Assume that the hospital uses the direct method for cost allocation. Furthermore, the cost driver for general administration and financial services is patient services revenue, while the cost driver for facilities is space utilization.

a. What are the appropriate allocation rates?

b. Allocate the hospital's overhead costs to the patient services department.

Please Explain answers, thank you!

St. Benedict's Hospital has three support departments and four patient ser- $2,000,000 General Administration 5,000,000 Facilities Financial Services 3,000,000 Selected data for the three support and four patient services departments are Patient Space Services (Square Housekeeping Salary Revenue Feet) Labor Hours Dollars Departme nt Support. 10,000 2,000 S1,500,000 General Administration 20,000 5,000 3,000,000 Facilities 3,000 2,000,000 Financial Services 15,000 Total 45,000 10,000 S6,500,000 Patient Services: $30,000,000 400,000 150,000 $12,000,000 Routine Care Intensive Care 5,000,000 4,000,000 40,000 30,000 15,000 6,000,000 Diagnostic Services 6,000,000 60,000 Other Services 10,000,000 100,000 25,000 7,000,000 Total $50,000,000 600,000 220,000 $30,000,000 Grand Total $50,000,000 645,000 230,000 $36,500,000

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