6.4 Assume that the hospital uses 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.

c. What is the difference in the allocation to each department between the two drivers? d. Which of the two drivers is better? Why? The following data pertain so problenms 6.3 ihrough 6.6: 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: 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 shown below: Patient Space Services (square Housekeeping Salary Revenue feet) Labor Hours Dollars Department Support: General 10,000 2,000 1,500,000 Administration Facilities Financial Services 20,000 5,000 3,000,000 3,000 2,000,000 45,000 10,000 S6,500,000 15,000 Total Patient Services: Routine Care $30,000,000 400,000 150,000 $12,000,000 5,000,000 6,000,000 25,000 7000,000 $50,000,000 600,000 220,000 $30,000,000 $50,000,000 645,000 230,000 $36,500,000 4,000,000 40,000 30,000 Intensive Care Diagnostic Services 6,000,000 60,000 15,000 Other Services 10,000,000 100,000 Total Grand Total 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. c. What is the difference in the allocation to each department between the two drivers? d. Which of the two drivers is better? Why? The following data pertain so problenms 6.3 ihrough 6.6: 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: 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 shown below: Patient Space Services (square Housekeeping Salary Revenue feet) Labor Hours Dollars Department Support: General 10,000 2,000 1,500,000 Administration Facilities Financial Services 20,000 5,000 3,000,000 3,000 2,000,000 45,000 10,000 S6,500,000 15,000 Total Patient Services: Routine Care $30,000,000 400,000 150,000 $12,000,000 5,000,000 6,000,000 25,000 7000,000 $50,000,000 600,000 220,000 $30,000,000 $50,000,000 645,000 230,000 $36,500,000 4,000,000 40,000 30,000 Intensive Care Diagnostic Services 6,000,000 60,000 15,000 Other Services 10,000,000 100,000 Total Grand Total 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