Return to the direct method of cost allocation and use the same cost drivers as specified in problem 6.4 for the general administration and facilities departments. However, assume that $2,000,000 of financial services costs are related to billing and managerial reporting and $1,000,000 are related to payroll and personnel management activities. a. Devise and implement a cost-allocation scheme that recognizes that the financial services department has two widely different functions. b. Is there any additional information that would be useful in completing part A? c. What are the costs and benefits to St. Benedicts of creating two cost pools for the allocation of financial services costs? From this problem, 6.6, what is allocation rate for the cost pool allocated based on patient services revenue and salary dollars

Below problem 6.4 for reference 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 for problem 6.3 to allocate the hospitals overhead costs to the patient services departments. c. Compare the dollar allocations with those obtained in problem 6.3. Explain the differences. d. Which of the two cost driver schemes is better? Below problem 6.3 for reference 6.3 St. Benedict's Hospital has three support department and four patient service departments. The direct cost to each of the support departments are General Administration $2,000,000 Facilities 5,000,000 Financial Services 3,000,000 Selected data for the three support and four patient services departments are: Patient Services Revenue Space (SF) Housekeeping Labor Hours Salary Dollars Department Support: General Administration 10,000 2,000 $1,500,000 Facilities 20,000 5,000 3,000,000 Financial Services 15,000 3,000 2,000,000 Total 45,000 10,000 $6,500,000 Patient Services: Routine Care $30,000,000 400,000 150,000 $12,000,000 Intensive Care 4,000,000 40,000 30,000 5,000,000 Diagnostic Services 6,000,000 60,000 15,000 6,000,000 Other Services 10,000,000 100,000 25,000 7,000,000 Total $50,000,000 600,000 220,000 $30,000,000 Grand Total $50,000,000 645,000 230,000 $36,500,000 Assume that the hospital uses the direct method for cost allocation. Furthermore the cost driver for the general administration and financial services is patient revenues, while the cost driver for facilities is space utilization. Patient services total routine care 30,000,000 400,000 150,000 12,000,000 42,550,000 intensive care 4,000,000 40,000 30,000 5,000,000 9,070,000 diagnostic services 6,000,000 60,000 15,000 6,000,000 12,075,000 other services 10,000,000 100,000 25,000 7,000,000 17,125,000 Total 50,000,000 600,000 220,000 30,000,000 80,820,000 a. General administration allocation rate = 2,000,000/80,820,000 = $ .02475 per patient service revenue Financial services = 3,000,000/80,820,000 = $ .03712 per patient service revenue b. General overhead allocated to: Intensive care = revenue of intensive care * allocation rate =9070000*.02475= $224,482.50 Financial services = 9070000*.03712= $ 336,678.40