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:

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

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EXHIBIT 6.7 Kennington Hospital: Final Allocations Patient Services Department Support Department (allocation rate) Routine Care Laboratory Radiology Financial Services ($0.05556) x $16,000,000 = $ 888,960 x $5,000,000 = $ 277,800 $6,000,000 = $ 333.360 Facilities ($12.64) x 199,800 = 2,525,472 39,600 = 500,544 61,200 = 773,568 Housekeeping ($17.58) X 76,000 = 1,336,080 6,000 = 105,480 9,000 = 158,220 Administration ($0.432) X 5,709,000 = 2,466,288 X 2,035,000 = 879,120 X 2,439,000 = 1,053,648 Human Resources ($0.250) 5,709,000 = 1,427,250 2,035,000 = 508,750 2,439,000 = 609,750 Total indirect costs $ 8,644,050 $ 2,271,694 Direct costs $ 5,500,000 $ 3,300,000 $ 14,144,050 $ 5,571,694 $ 2,928,546 $ 2,800,000 $ 5,728,546 Total costs Total indirect costs = $8,644,050 + $2,271,694 + $2,928,546 = $13,844,290. Total costs $14,144,050 + $5,571,694 + $5,728,546 = $25,444,290. =