11. Wellspring Community Hospital has two patient service departments, medicine
ID: 2772524 • Letter: 1
Question
11. Wellspring Community Hospital has two patient service departments, medicine and surgery. The patient service departments are supported by the housekeeping department, the financial services department, and the administration department. The administration department of Wellspring Community Hospital has compiled the following information:
Housekeeping
$200,000 direct costs
3,000 square feet
250 employees
Administration
$400,000 direct costs
5,000 square feet
500 employees
Financial services
$300,000 direct costs
2,000 square feet
100 employees
Medicine
$1 million direct costs
53,000 square feet
2,600 employees
Surgery
$1.5 million direct costs
40,000 square feet
2,300 employees
Wellspring has determined that the cost driver for housekeeping is square feet and that the cost driver for administration and financial services is the number of employees. Using the direct method of cost allocation, what is the approximate allocation rate for housekeeping costs? (Round to the nearest cent.)
a. $2.15
b. $1.94
c. $2.11
d. $2.00
e. $5.00
Explanation / Answer
The total number of square feet for housekeeping department for entire hospital
=square feets of Housekeeping+square feets of Administration+square feets of Financial services+square feets of Medicine+square feets of Surgery
=3,000 + 5,000 + 2,000 + 53,000 + 40,000 = 103000 square feets
Total direct costs of Housekeeping= $200,000
approximate allocation rate of direct cost/square feet=Total direct costs of Housekeeping/ total number of square feet for housekeeping= $200,000/103000 = $1.94 per square feet is the option b.
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