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

Question

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:

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.

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

Explanation / Answer

Solution a:

Solution b:

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

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