St. Benedictâs Hospital has three support departments and four patient services departments.The direct costs to each of the support departments are:General Administration $2,000,000Facilities 5,000,000Financial Services 3,000,000Selected data for the three support and four patient services departments are as follows:Patient SpaceServices (Square Housekeeping SalaryDepartment Revenue Feet) Labor Hours DollarsSupport:General 10,000 2,000 $1,500,000AdministrationFacilities 20,000 5,000 3,000,000Financial Services 15,000 3,000 2,000,000Total 45,000 10,000 $6,500,000Patient Services:Routine Care $30,000,000 400,000 150,000 $12,000,000Intensive Care 4,000,000 40,000 30,000 5,000,000Diagnostic Services 6,000,000 60,000 15,000 6,000,000Other Services 10,000,000 100,000 25,000 7,000,000Total $50,000,000 600,000 220,000 $30,000,000Grand total $50,000,000 645,000 230,000 $36,500,0004.6 Assume that the hospital uses the direct method for cost allocation. Furthermore, thecost driver for General Administration and Financial Services is patient services revenue,while the cost driver for Facilities is space utilization.a.What are the appropriate allocation rates?b. Allocate the hospitalâs overhead costs to the patient services departments.4.7 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 servicesrevenue as the cost driver for Financial Services. (The majority of the costs of the FacilitiesDepartment are devoted to housekeeping services.)a.What are the appropriate allocation rates?b. Allocate the hospitalâs overhead costs to the patient services departments.c. Compare the dollar allocations with those obtained in Problem 4.6. Explain thedifferences.d.Which of the two cost driver schemes is better? Explain your answer.4.8 Now assume that $2million of Financial Services costs are related to billing andmanagerialreporting and $1million are related to payroll and personnelmanagement activities.a. Devise and implement a cost allocation scheme that recognizes that Financial Serviceshas 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. Benedictâs of creating two cost pools for FinancialServices?
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