6.4 Assume that the hospital users 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. (The majority of the costs of the facilities department stem from the provision of housekeeping services.)

a. What are the appropriate allocation rates?

b. Use an allocation table similar to the one used for Problem 6.3 to allocate the hospitals overhead costs to the patient services departments.

c. Compare the dollar allocations with those obtained in Problem 6.3 Explain the differences.

d. Which of the two cost driver schemes is better? 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 vices departments. The direct costs to each of the support departments are General Administration Facilities Financial Services 2,000,000 5,000,000 3,000,000 Selected data for the three support and four patient services departments are Patient Services Revenue Space (Square Housekeeping Salary Feet) Department Support: General Administration Facilities Financial Services Labor Hours Dollars 10,000 20,000 15,000 45,000 2,000 5,000 3,000 10,000 $1,500,000 3,000,000 2,000,000 $6,500,000 Total Patient Services: Routine Care Intensive Care Diagnostic Services Other Services Total Grand Total $30,000,000.00 4,000,000 40,000 6,000,00 60,000 10,000,000 100,000 600,000 400,000 150,000 30,000 15,000 25,000 220,000 000 230,000 $12,000,000 5,000,000 6,000,000 7,000,000 S 30,000.000 36,500,000 $50,000,000 $50,000,000 645, 6.3 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