Assume that the hospital uses the direct method for cost allocation. Furthermore
ID: 2742146 • Letter: A
Question
Assume that the hospital uses the direct method for cost allocation. Furthermore, the cost driver for general administration and financial services is patient service revenue, while the cost driver for facilities space utilization.
***What are the appropriate allocation rates? Please show your work on how to arrive at the allocation rate. IS the information in the graph correct? Please show work***
Use the allocation table similar to Exhibit 6.7 to allocate the hospital’s overhead costs to the patient services departments.
Patient Services Department
Support Department
Allocation Rate
Routine Care
Intensive care
Diagnostic Services
Other Services
Total
General Admin
0.04
1,200,000
160,000
240,000
400,000
2,000,000
Facilities
0.1
2,000,000
200,000
300,000
500,000
3,000,000
Financial Services
5
3,000,000
400,000
600,000
1,000,000
5,000,000
Total Indirect Costs
6,200,000
760,000
1,140,000
1,900,000
10,000,000
Patient Services Department
Support Department
Allocation Rate
Routine Care
Intensive care
Diagnostic Services
Other Services
Total
General Admin
0.04
1,200,000
160,000
240,000
400,000
2,000,000
Facilities
0.1
2,000,000
200,000
300,000
500,000
3,000,000
Financial Services
5
3,000,000
400,000
600,000
1,000,000
5,000,000
Total Indirect Costs
6,200,000
760,000
1,140,000
1,900,000
10,000,000
Bookshelf File Edit View Book Account Window Help Healthcare Finance: An Introduction to Accounting and Financial Management, 5th Edition Exam Bookshelf Back Forward Make Highlight Make Note Current Highlighter Larger Text Smaller Text Start Reading Stop Reading Show Navigation Page Layout CHAPTER 6: COST ALLOCATION 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 General Administration Facilities Financial Services $2,000,000 5,000,000 3,000,000 Selected data for the three support and four patient services departments are Department Patient Services Revenue Space (Square Feet) Housekeeping Labor Hours Salary Dollars Support General 10,000 2,000 $1,500,000 Administration 20,000 5,000 3,000 10,000 Facilities 3,000,000 Financial Services 15.000 Total Patient Services: Routine Care Intensive Care Diagnostic Services Other Services 150,000 30,000 15,000 25,000 220.000 230.000 $30,000,000 4,000,000 6,000,000 400,000 40,000 60,000 100,000 600,000 645000 $12,000,000 5,000,000 6,000,000 Total Grand Total 215 216 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.Explanation / Answer
Solution.
What are the appropriate allocation rates? Please show your work on how to arrive at the allocation rate.
A.
General Admin = 2,000,000 / 10,000,000 = 020
Facilities = 3,000,000 / 10,000,000 = 0.30
Financial Services = 5,000,000 / 10,000,000 = 0.50
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