A hospital then can use either the reciprocal method or the step method to solve the cost-allocation problem. If it uses the step method, the order of departments for allocation is the same as that by which the departments are listed in Exhibit 10-11. Thus, depreciation and maintenance, buildings, is allocated before depreciation, movable equipment. Cost centers must be established for each of these nonrevenueproducing costs that are relevant to a particular hospital’s operations.

In the past year, WeCare Hospital reported the following departmental costs:

Nonrevenue producing:

RatinehnyvecinGilime iowa Arceeteus akan pecetsedeaetiaes $ 250,000 Depreciation and maintenance, buildings.............. 830,000 Employee health and welfare «00... Crease 375,000 Maintenameeof personnel ......0::-..cccceseseseeosenenerncetes 210,000

(CEPA UTO)ON seps conoeee cease semueccchesetnconaaycc cesceaeantanc e 745,000 Revenue producing:

@WeratinGMOonieeser circa cece meee cesar

a. tasee: 1,450,000 RVIO COLON sonecanonqmuceeccicaraa: sneetae aeEeeanmnee oayae caeceeRa eeN 160,000 MANS OPENIOING & secestcaccecsete ce sea centie nae enronTiie aaciacecinaes oaceeeees 125,000 A EMENOO MIS: mescee cs cache aaaeeeves ats gesurtnenr hn eaaamnmenest 2,800,000 Percentage usage of one department’s services by another department follows:

To Nonrevenue Producing Depreciation and Employee Laundry Maintenance, Health and Maintenance Central From and Linen Buildings Welfare of Personnel Supply AU MeliWeAMCilinG Mme sometutceest deuarecsde esneo ee — 5% 10% -- —

Depreciation and maintenance, buildings 10% = a= 10% _ Employee health and welfare .............. 15 = — 5% 3%

Maintenance of personnel...........cc:ceee _— — — — 12%

(CETRICEN-SUfo) oN idee oe teranatoneeurap okanon tee oe ornecr 10 — _ 8% ae To Revenue Producing Operating Patient From Rooms Radiology Laboratory Rooms Laundry and linen 30% 10% 5% 40%
Depreciation and maintenance, buildings 5 2 2 (fall Employee health and welfare 25 S) X 4 43 Maintenance of personnel 36 10 8 34 Central supply 9 4 3 66 The percentage usage of revenue-producing department services by Medicare and other patients follows:
Medicare Other GSOeratinagvOOmsSme we aecereere eeee eee 25% 15%
RACIOIOG Vertcace tere tee Ne cheese cane 20 80 FAD Orato acres ater cen cee nO 72 PAtleMbrOOMS mnsmemrareterte ..e ae 36 64 Required What is the amount of the reimbursement claim for Medicare services, using the step method of allocation?
Use this order of allocation: (1) Depreciation and maintenance, buildings (2) employee health and welfare, (3) laundry and linen, (4) maintenance of personnel, and (5) central supply.