Tacoma Hospital has three support departments and four patientservices departments. The direct costs to each of the supportdepartments are as follows:
Direct Costs
Cost Driver
General Administration
$2,000,000
Patient Services Revenue
Facilities
$5,000,000
Space (square feet)
Financial Services
$3,000,000
Patient Services Revenue
Total
$10,000,000
The patient services revenue and space utilization (square feet)for each department are as follows:
Patient Services Revenue
Space (square feet)
Routine Care
$30,000,000
400,000
Intensive Care
$4,000,000
40,000
Diagnostic Services
$6,000,000
60,000
Other Services
$10,000,000
100,000
Total
$50,000,000
600,000
Assume that the hospital uses the direct method for costallocation. Furthermore, the cost driver for general administrationand financial services is patient services revenue, while the costdriver for facilities is space utilization.
a. Use an allocation table similar to Exhibit 6.7 to allocatethe hospitalâs overhead costs to the patient servicesdepartments.
Tacoma Hospital has three support departments and four patientservices departments. The direct costs to each of the supportdepartments are as follows:
Direct Costs | Cost Driver | |
General Administration | $2,000,000 | Patient Services Revenue |
Facilities | $5,000,000 | Space (square feet) |
Financial Services | $3,000,000 | Patient Services Revenue |
Total | $10,000,000 |
The patient services revenue and space utilization (square feet)for each department are as follows:
Patient Services Revenue | Space (square feet) | |
Routine Care | $30,000,000 | 400,000 |
Intensive Care | $4,000,000 | 40,000 |
Diagnostic Services | $6,000,000 | 60,000 |
Other Services | $10,000,000 | 100,000 |
Total | $50,000,000 | 600,000 |
Assume that the hospital uses the direct method for costallocation. Furthermore, the cost driver for general administrationand financial services is patient services revenue, while the costdriver for facilities is space utilization.
a. Use an allocation table similar to Exhibit 6.7 to allocatethe hospitalâs overhead costs to the patient servicesdepartments.
Related questions
Tacoma Hospital has three support departments and four patientservices departments. The direct costs to each of the supportdepartments are as follows:
Tacoma Hospital has three support departments and four patientservices departments. The direct costs to each of the supportdepartments are as follows:
Direct Costs | Cost Driver | |
General Administration | $2,000,000 | Salary Dollars |
Facilities | $5,000,000 | Housekeeping Labor Hours |
Financial Services | $3,000,000 | Patient Services Revenue |
Total | $10,000,000 |
The patient services revenue, salary dollars, and housekeepinglabor hours for each department are as follows:
Revenue | Salary Dollars | Housekeeping Labor Hours | |
General Administration | $1,500,000 | 2,000 | |
Facilities | $3,000,000 | 5,000 | |
Financial Services | $2,000,000 | 3,000 | |
Routine Care | $30,000,000 | $12,000,000 | 150,000 |
Intensive Care | $4,000,000 | $5,000,000 | 30,000 |
Diagnostic Services | $6,000,000 | $6,000,000 | 15,000 |
Other Services | $10,000,000 | $7,000,000 | 25,000 |
Assume that the hospital uses the step-down method for costallocation (see pages 230 0 232), with salary dollars as the costdriver for general administration, housekeeping labor hours as thecost driver for facilities, and patient services revenue as thecost driver for financial services. Assume also that the generaladministration department provides the most services to othersupport departments, followed closely by the facilities department.The financial services department provides the least services tothe other support departments.
a. Use an allocation table to allocate the hospitalâs overheadcosts to the patient services departments.
b. Is the direct method or the step-down method better for costallocation within Tacoma Hospitalâs? Please explain.
Kensington Hospital has three support departments (cost centers): General Administration, Facilities, and Financial Services, and four patient services departments (revenue centers): Routine, Intensive, Diagnostic and Other Services. The direct costs to each of the support departments are:
| Support Department | Direct Cost |
| General Administration | $ 2,000,000 |
| Facilities | $ 5,000,000 |
| Financial Services | $ 3,000,000 |
There are several potential cost drivers for each department, such as patient service revenue, space utilization, housekeeping labor hours and salary dollars. The financial and operational data for the three support departments and four patient services departments:
| Patient Service Revenue ($) | Space (sq-ft) | Housekeeping Labor Hours | Salary Dollars ($) | |
| Support: (Cost Centers) | ||||
| General Administration | 10,000 | 2,000 | 1,500,000 | |
| Facilities | 20,000 | 5,000 | 3,000,000 | |
| Financial | 15,000 | 3,000 | 2,000,000 | |
| Total | 45,000 | 10,000 | 6,500,000 | |
| Patient Services: (Revenue Centers) | ||||
| Routine | 30,000,000 | 400,000 | 150,000 | 12,000,000 |
| Intensive | 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 |
1. Assume that the hospital uses the direct method for cost allocation. Furthermore, the cost driver for General Administration and Financial Services is patient services revenue ($), while the cost driver for Facilities is space utilization (sq-ft).
a. What are the appropriate allocation rates?
ANSWER: (Please show calculation details for partial points)
| Cost Allocation Rate: | ||
| General Administration | ? | per dollar of patient services revenue |
| Facilities | ? | per sq-ft space |
| Financial Services | ? | per dollar of patient services revenue |
b. Allocate the hospitalâs overhead costs to the patient services departments using the following table.
ANSWER:
| Patient Services Department | |||||
| Routine | Intensive | Diagnostic Services | Other Services | Total | |
| General Administration | ? | ? | ? | ? | $2,000,000 |
| Facilities | ? | ? | ? | ? | $5,000,000 |
| Financial Services | ? | ? | ? | ? | $3,000,000 |
| Total Indirect Costs | ? | ? | ? | ? | 10,000,000 |
2. 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?
ANSWER: (Please show calculation details for partial points)
| Cost Allocation Rate: | ||
| General Administration | ? | per dollar of salary |
| Facilities | ? | per housekeeping hour |
| Financial Services | ? | per dollar of patient services revenue |
b. Allocate the hospitalâs overhead costs to the patient services departments using the following table.
ANSWER: (Please show calculation details for partial points)
| Patient Services Department | |||||
| Routine | Intensive | Diagnostic Services | Other Services | Total | |
| General Administration | ? | ? | ? | ? | $2,000,000 |
| Facilities | ? | ? | ? | ? | $5,000,000 |
| Financial Services | ? | ? | ? | ? | $3,000,000 |
| Total Indirect Costs | ? | ? | ? | ? | 10,000,000 |
