6.5 (Hint: The step-down method of cost allocation, reviewed in this problem, is covered in detail in the Chapter 6 Supplement.) 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 the general administration department provides the most services to other support departments, followed closely by the facilities department. The financial services department provides the least services to the other support departments. a. Use an allocation table to allocate the hospitals 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. Benedicts? 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