Question

XYZ Hospital
	Housekeeping	H/R	Gen Admin	ICU Care	Routine Care	Total
Revenue	-	-	-	5,000,000	7,000,000	$12,000,000
Direct Costs	(1,500,000)	(1,000,000)	(2,000,000)	(2,750,000)	(4,000,000)	(11,250,000)
Allocated Costs
Housekeeping						-
Human Resources						-
General Admin						-
Profit/(Loss)	(1,500,000)	(1,000,000)	(2,000,000)	2,250,000	3,000,000	$750,000
House Keeping Labor Hours	250	500	1,000	30,000	20,000	51750
Employees	20	5	10	15	25	75
Square Feet	500	1,000	2,000	10,000	20,000	33,500

XYZ Hospital does not allocate Support Costs by Dept to Patient Service Depts, and has historically done P&L statement.

Part 1: Use Step Down cost allocation method to allocate Support Dept Costs to Patient Service Depts in order to know profitability of each Patient Service Dept. Allocate costs in this order and by 3 following methods:

1) Housekeeping by Square Feet
2) Human Resources: by Number of Employees
3) General Administration: By Revenue

Complete a dept cost allocation schedule identifying all relevant allocation rates, amounts allocated, cost pools, drivers, etc. and a final Profit and Loss calculation by Patient Service Dept for each of the 3 methods.

Ex:

Cost Pool for:	Housekeeping by SF
Department			Allocation Rates	$'s Allocated
Housekeeping
H/R
Gen Admin
ICU Care
Routine Care
Total of Driver			Allocated Costs	$-
Allocation rate:			Costs to Allocate
				$0

Part 2: Apply housekeeping labor hours rather than square feet to allocate housekeeping costs for each of the three methods.

Answer 1

Solution Part 1:-

Working note for cost allocation by support dept. to Patient Service Dept

a) Calculation of housekeeping by Sq. Ft.(SF)

Department	Housekeeping by SF	Allocated Rates	Allocated cost
H/R	1,000	1/33	45,455
Gen Admin	2,000	2/33	90,910
ICU Care	10,000	10/33	4,54,545
Routine Care	20,000	20/33	9,09,090
Total	33,000		15,00,000

b) Calculation of human resources by no. of employees(NOE)

Department	Human resource by NOE	Allocated Rates	Allocated cost
Gen Admin	10	1/5	2,09,090
ICU Care	15	3/10	3,13,637
Routine Care	25	1/2	5,22,728
Total	50		10,45,455

c)Calculation of General Administration by Revenue

Department	Revenue	Allocated Rates	Allocated cost
ICU Care	50,00,000	5/12	9,58,333
Routine Care	70,00,000	7/12	13,41,667
Total	1,20,00,000		23,00,000

Calculation of total Department cost&Final Profit &Loss

Particulars	Housekeeping	H/R	Gen Admin	ICU CARE	Routine Care	Total
Revenue	-	-	-	50,00,000	70,00,00	1,20,00,000
Less:Direct Costs
Overhead Cost before allocation	15,00,000	10,00,000	20,00,000	27,50,000	40,00,000	1,12,50,000
Housekeeping	(15,00,000)	45,455	90,910	4,54,550	9,09,100	-
H/R	-	(10,45,455)	2,09,090	3,13,637	5,22,728	-
Gen Admin	-	-	(23,00,000)	9,58,333	13,41,667	-
Total Cost	-	-	-	44,76,520	67,73495	-
Profit/(Loss)	-	-	-	5,23,480	2,26,505	7,49,985*

*Round off differnce

Part 2:-

Calculation of housekeeping by Labour Hours

Department	Labour Hours	Allocated Rates	Allocated cost
H/R	500	5/515	14,563
Gen Admin	1,000	10/515	29,126
ICU Care	30,000	300/515	8,73,786
Routine Care	20,000	200/515	5,82,524
Total	51,500		15,00,000