Acme Pines Memorial Health & Rehabilitation Center has 2 revenue generating departments, Skilled Nursing Services and Rehabilitation Therapy Services. There are 3 support departments: Housekeeping, Dietary Services, and Administration. Housekeeping, Dietary and Administration costs need to be allocated to Skilled Nursing and Therapy.

Costs Sq. Feet Meals F/TEmp

Housekeeping $300,000 1,000 --- 20

Dietary $500,000 10,000 160 8

Administration $400,000 10,000 200 10

Skilled Nursing $1,200,000 100,000 20,000 50

Therapy $800,000 60,000 10,000 40

a. What cost driver (Square Feet, # Meals, FTEs) will you use for Housekeeping, Dietary and Administration? Why? Support your choice of driver.

b. Using the Direct Allocation Method, Allocate the indirect costs from Housekeeping, Dietary and Administration costs to Skilled Nursing and Therapy Services. Show your work.

c. Housekeeping provides the most services to the other support departments, followed by Administration, then Dietary. Allocate the indirect costs using the stair step method.

d. What is the difference in the cost allocations between the 2 methods? Why? Which method would you suggest Acme Pines adopt. Why?