Question
This is an organizational chart for a hospital. The following table shows the cost application bases used to distribute various costs. Cost Pool Cost Allocation
This is an organizational chart for a hospital. The following table shows the cost application bases used to distribute various costs.
| Cost Pool | Cost Allocation Base | Annual Cost |
| Facilities | Square feet of space | $380,000 |
| Utilities | Cubic feet of space | $48,000 |
| General Administration | Budget number of employees | $440,000 |
| Community Outreach | Budgeted dollars of patient billing | $80,000 |
Allocation base associated with each division
| Square Feet | Cubic Feet | Number of Employees | Patient Billing | |
| General Medicine | 15,000 | 135,000 | 30 | $4,000,000 |
| Surgical Division Support | 8,000 | 100,000 | 20 | $2,500,000 |
| Medical Support | 9,000 | 90,000 | 20 | $1,500,000 |
| Administrative Division | 8,000 | 75,000 | 30 | 0 |
| Total | 40,000 | 400,000 | 100 | $8,000,000 |
What is the appropriateness of patient billing as the basis for distributing community outreach costs to the hospital division? Is there a better allocation base?
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