Problem:
St Mary's Hospital has three support departments and four patient services departments. The direct cost to each of the support departments is as follows:
General Administration $2,000,000
Facilities: $5,000,000
Financial Services: $3,000,000
1. Assume the hospital uses the direct method for cost allocation. Furthermore, the cost driver for the 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. Allocate the hospital overhead costs to the patients services department.
Department Space Housekeeping Salary
Support: (sq ft) Labor hours Dollars
General 10000 2000 1,500,000
Admin
Facilities 20,000 5,000 3,000,000
Financial Services 15,000 3,000 2,000,000
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Total 45,000 10,000 6,500,000
Patient Services:
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
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Total 50,000,000 600,000 220,000 30,000,000
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Grand Total 50,000,000 645,000 230,000 36,500,000