Question

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.

Answer 1

As you have not provided Exhibit 6.7, the allocation table format may change. but overall allocation amounts will be the same.