Assume that the hospital uses salary dollars as the cost driver for General Administration,… 1 answer below »

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 are devoted to housekeeping services.)

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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. Explain the differences.

d. Which of the two cost driver schemes is better? Explain your answer.

Problem 6.3

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.

a. What are the appropriate allocation rates?

b. Use an allocation table similar to Table 6.6 to allocate the hospital’s overhead costs to the patient services departments.