Now assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost driver for General Administration, housekeeping labor hours as the cost driver for Facilities, and patient services revenue as the cost driver for Financial Services.

Assume also that General Administration provides the most services to other support departments, followed closely by Facilities. Financial Services provides the least services to the other support departments.

a. Use an allocation table to allocate the hospital’s overhead costs to the patient services departments.

b. Compare the dollar allocations with those obtained in Problem 6.4.

Explain the differences.

c. Is the direct method or the step-down method better for cost allocation within St. Benedict’s? Explain your answer.

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

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

Transcribed Image Text:

General Administration $2,000,000 Facilities 5,000,000 Financial Services 3,000,000