P $8-1$: Swedish Hospital

Swedish Hospital uses a step$-$down method to allocate $25$ indirect service department costs $($information

technology, laundry, security, records, food service, etc.$)$ to the six direct patient care units $($surgery$,$

maternity, psychiatry, etc.$).$ The Food Service $($FS$)$ department $($patient and staff dining$)$ currently is the

third service department to be allocated in the step$-$down methodology. Swedish is revamping its step$-$down

methodology and is considering moving FS from its $3$rd place position to the $23$rd position.

Required:

a$.$ FS costs are allocated based on the number of meals served. Does the FS allocated cost per meal served increase or

decrease if FS moves from its $3$rd place position to the $23$rd position in the step$-$down methodology? Also, describe

exactly what causes the allocated cost per meal to increase or decrease.

b$.$ Describe the issues that Swedish management should consider before moving FS from its $3$rd place position to the $23$rd

position in the step$-$down methodology.