Return to the direct method of cost allocation and use the same cost drivers as specified in Problem 6.4 for General Administration and Facilities. However, assume that $2,000,000 of Financial Services costs are related to billing and managerial reporting and $1,000,000 are related to payroll and personnel management activities.

a. Devise and implement a cost allocation scheme that recognizes that Financial Services has two widely different functions.

b. Is there any additional information that would be useful in completing Part a?

c. What are the costs and benefits to St. Benedict’s of creating two cost pools for Financial Services?

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:

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