Assume that the hospital uses salary dollars as the cost driver for general administration and employee benefits,

Question:

Assume that the hospital uses salary dollars as the cost driver for general administration and employee benefits, and space utilization as the cost driver for maintenance.

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.

c. Compare the dollar allocations with those obtained in problem 6.7. Which departments are allocated more overhead costs?

Which are allocated less?

Problem 6.7

Assume the hospital uses the direct method for cost allocation.

Furthermore, the cost driver for general administration is patient services revenue, the cost driver for maintenance is space utilization, and the cost driver for employee benefits is the number of full-time equivalent employees.

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.

Exhibit 6.7

St. Luke’s Hospital has three support departments and four patient services departments. The direct costs to each of the support departments are as follows: image text in transcribed