Problem 6.3:

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 hospital's overhead costs to the patient services departments. c. Compare the dollar allocations with those obtained in problem 6.3. Which departments are allocated more overhead costs? Which are allocated less? d. Which of the two cost driver schemes is better? Explain your answer. The following data pertain to problems 6.7 and 6.8: St. Luke'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 Maintenance Employee benefits $4,000,000 5,000,000 4,000,000 Selected data for the three support and four patient services departments are shown below: Number of Full-Time Equivalent Employees Patient Services Revenue Space (square feet) Salary Dollars 15 75 8,000 10,000 7,000 25,000 $ 2,500,000 3,500,000 3,000,000 $ 9,000,000 50 140 Department Support: General administration Maintenance Employee benefits Total Patient Services: Routine care Intensive care Obstetrics services Other services Total Grand total 700 200 150 $40,000,000 7,000,000 4,000,000 12,000,000 $63,000,000 $63,000,000 500,000 45,000 35,000 200,000 780,000 805,000 $18,000,000 6,000,000 4,000,000 8,000,000 $36,000,000 $45,000,000 400 1,450 1,590 Appropriate allocation rate: Sweet! Glad to be of help! General administration = $4,000,000 / 63,000,000 = $0.06 per patient revenue Facilities = $5,000,000 / 780,000 = $6.41 per square feet Financial services = $4,000,000 / 63,000,000 = $0.06 per patient revenue b. Routine care Intensive care Other servic Overhead cost Allocation rate Diagnostic services $4,000,000 $0.06 General administration $2,400,000 $420,000 $240,000 $720,000 (40,000,000*$0.06) (7,000,000*$0.06) (4,000,000*$0.06) (12,000,000 Facilities 5,000,000 6.41 3,205,000 (500,000*$6.41) 288,450 (45,000*$6.41) 224,350 (35,000*$6.41) 1,282,000 (200,000*$ 4,000,000 0.06 Financial services $2,400,000 $420,000 $240,000 $720,000 (40,000,000*$0.06) (7,000,000*$0.06) (4,000,000*$0.06) (12,000,000 $13,000,000 8,005,000 $1,128,450 $7,04,350 $2,722,000 as per Chegg guidlines , one question has been answered