Littleton Medical Center (LMC) has three service departments(accounting, HR, and Janitorial/maintenance) and two patient units:...

Littleton Medical Center (LMC) has three service departments (accounting, HR, and Janitorial/maintenance) and two patient units: hospital and an outpatient clinic. The following table summarizes the Operations of LMC for the last fiscal year.

Service Dept	Service Dept Cost
HR	$1,750,000
Accounting	$1,450,000
Janitorial/Maintenance	$2,500,000

These Department Costs are allocated to the two patient units (hospital and clinic). The following table summarized the allocation based used to allocate each service department and the utilization of each allocation base.

Service Departments Patient Units

Service Depts HR Acctg Jan/Maint Clinic Hospital Allocation Base

HR		50	150	2,000	3,000	Employees
Accounting	50		100	6,000	4,000	Transactions (000)
Janitorial/Maintenance	8,000	9,000		150,000	400,000	Square Feet

A. Allocate the three service departments' costs (HR, Accounting, and Janitorial/Maintenance) to the two patient units (clinic and hospital) using the direct allocation method.

B. Allocate the three service departments costs (HR, Accounting and Janitorial/Maintenance) to the two patient units (Clinic and Hospital) using the step-down allocation method.

C. What are the primary advantages of the step=down method compared to the direct allocation method?

Expert Solution

ekkarill92 answered 2 years ago

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