Question
I really need help with cost allocation in my finance course. I think that in the direct method the allocation rate would be: $5,000,000/600,000 square
I really need help with cost allocation in my finance course. I think that in the direct method the allocation rate would be: $5,000,000/600,000 square feet for the allocation rate * each patient services square footage for the allocation. I would really really appreciate help and clarification with this.
St. Benedict's Hospital has three support departments and four patient services departments. The direct costs to each support department are
General Administration: $2,000,000
Facilities: $5,000,000
Financial services: $3,000,000
Department
Support:
General Administration - 10,000 square feet
Facilities: 20,000 square feet
Financial services: 15,000 square feet
Total: 45,000 square feet
Patient services:
Routine care - 400,000 square feet
Intensive care - 40,000 square feet
Diagnostic services - 60,000 square feet
Other services - 100,000 square feet
Total: 600,000 square feet
Grand total: 645,000 square feet
Patient Services:
Assume that the hospital uses the direct method or cost allocation. If the cost driver for facilities is space utilization, what is the appropriate allocation rate? Allocate the hospital's facility overhead cost to the patient services department.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started