Now assume that the hospital uses the step-down method for cost allocation, with
ID: 2399374 • Letter: N
Question
Now assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost driver for general administration, housekeeping labor hours as the cost driver for facilities, and patient services revenue as the cost driver for financial services. Assume also that the general administration department provides the most services to other support departments, followed closely by the facilities department. The financial services department provides the least services to the other support departments.
Font Paragraph Problem 6.5 General admin initial allocation Direct costs Total salary Allocation rate S0 #DIV/0! #DIV/0! #DIV/0! Facilities Financial service:s Subsequent allocation to facilities Cost pool Admin allocation S0 #DIV/0! #DIV/0! Hours 223,000 Patient service plus financial services Allocation per hour #DIV/0! Hours 3,000 financial services hours Allocation to Financial service:s #DIV/0! Subsequent allocation to financial services Cost pool Facilities allocation Admin allocation S0 #DIV/0! #DIV/0! #DIV/0! 50,000,000 #DIV/0! Patient services revenue Allocation per revenue $Explanation / Answer
Patients Services Department
Support Department | Rout. Care | Intens. Care| Diag. Care | Other |Total
General Admin (.066) | 840,000 | 350,000 | 420,000 | 490,000 | 2,100,000
Facilities (22.72) |4,171,500| 834,300 | 417,150 | 695,250 | 6,118,200
Financial Services (.06) | 1,800,000 | 240,000 | 360,000 | 600,000 | 3,000,000
Total indirect costs 11,218,200
General Administration- $2,000,000/30,000,000-1,500,000= $2,000,000/28,500,000=.07
Finance- $2,000,000 x (2,000,000/6,500,000)= 615384
Facilities- $2,000,000 x (3,000,000/6,500,000)= 923076
Department Salary Dollars Cost @.07
Routine Care $12,000,000 $840,000
Intensive Care $5,000,000 $350,000
Diagnostic Services $6,000,000 $420,000
Other Services $7,000,000 $490,000
30,000,000 $2,100,000
Facilities- $5,000,000+923076/220,000-7000= 5923076/213000=27.81
Department Housekeeping Cost @27.81
Routine Care 150,000 $4,171,500
Intensive Care 30,000 $834,300
Diagnostic Services 15,000 $417,150
Other Services 25,000 $695,250
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