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In: Accounting

The following data pertain to problems 6.3 through 6.6: St. Benedict’s Hospital has three support departments...

The following data pertain to problems 6.3 through 6.6:
St. Benedict’s Hospital has three support departments and four patient services departments. The direct costs to each of the support departments are as follows:
General Administration $2,000,000

Facilities $5,000,000

Financial Services $3,000,000
Selected data for the three support and four patient services departments are shown below:

department patient services revenue space (sq ft.) Housekeeping labor hours salary dollars
General administration 10,000 2,000 $1,500,000
Facilities 20,000 5,000 3,000,000
Financial Services 15,000 3,000 2,000,000
Total 45,000 10,000 $6,500,000
Routine Care $30,000,000 400,000 150,000 $12,000,000
Intensive Care $4,000,000 40,000 30,000 $5,000,000
Diagnostic Services $6,000,000 60,000 15,000 $6,000,000
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

Q:

6.3 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. Use an allocation table similar to Exhibit 6.7 to allocate the hospital’s overhead costs to the patient services departments.

Solutions

Expert Solution

Solution a:

Computation of allocation rate for support department cost
Support department Direct Cost Cost driver Total usage of cost driver by Patient services department Allocation Rate
General Administration $2,000,000.00 patient services revenue 50000000 $0.04
Facilities $5,000,000.00 space utilization 600000 $8.33
Financial Services $3,000,000.00 patient services revenue 50000000 $0.06

Solution b:

Allocation of Support Department Cost to Patient Service Department
Particulars Routine Care Intensive Care Diagnostic Service Other services
Patient service Revenue $30,000,000.00 $4,000,000.00 $6,000,000.00 $10,000,000.00
Space utilization (In Sq Ft) 400000 40000 60000 100000
Allocation of General Administration cost (Patient service revenue * $0.04) $1,200,000.00 $160,000.00 $240,000.00 $400,000.00
Allocation of Facilities department cost (Space utilized * $8.3333) $3,333,333.33 $333,333.33 $500,000.00 $833,333.33
Allocation of Financial services department cost (Patient service revenue * $0.06) $1,800,000.00 $240,000.00 $360,000.00 $600,000.00

ekkarill92 answered 1 year ago
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