St. Benedict?s Hospital has three support departments and four patient services

Question

St. Benedict?s Hospital has three support departments and four patient services departments.
The direct costs to each of the support departments are:
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 as follows:
Patient Space
Services (Square Housekeeping Salary
Department Revenue Feet) Labor Hours Dollars
Support:
General 10,000 2,000 $1,500,000
Administration
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
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
Total $50,000,000 600,000 220,000 $30,000,000
Grand total $50,000,000 645,000 230,000 $36,500,000

4.6 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 is the allocation rate for General Administration and Financial Services

b.how much overhead for General Administration and Financial Services is allocated to Intensive Care?

Explanation / Answer

a)General administration allocation rate = 2,000,000/80,820,000

                                                          = $ .02475 per patient service revenue

financial services = 3,000,000/80,820,000

                                 = $ .03712 per patient service revenue

b)general overhead allocated to intensive care = revenue of intensive care * allocation rate

                                                                     =9070000*.02475

                                                               = $ 224,482.50

financial services = 9070000*.03712

                           = $ 336,678.40

Patient services total routine care 30,000,000 400,000 150,000 12,000,000 42,550,000 intensive care 4,000,000 40,000 30,000 5,000,000 9,070,000 diagnostic services 6,000,000 60,000 15,000 6,000,000 12,075,000 other services 10,000,000 100,000 25,000 7,000,000 17,125,000 Total 50,000,000 600,000 220,000 30,000,000 80,820,000

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