Alternative Allocation Bases: General Hospital has two departments that share the common costs of the hospital's respiratory equipment which is $485,000. You have the following information about the two user departments:

Required:

a. What is the respiratory equipment cost charged to Departments A and B if service-hours is used as an allocation basis?

b. What is the respiratory equipment cost charged to Departments A and B using value of equipment as a basis for allocation?

c. Which method allocates more costs to Department A? Why? Which method allocates more costs to Department B? Why?

Transcribed Image Text:

User Department AB Service-Hours Used This Period in Each User Department 460 316 Value of Equipment (in thousands) $121,250 480,000