Now assume that the hospital uses the step-down method for cost allocation, with

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

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.