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.

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

Selected data for the three support and four patient services departments are shown below:

Exhibit 6.7

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General administration $2,000,000 Facilities 5,000,000 Financial services 3,000,000