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

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 10 months ago

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