Tacoma Hospital has three support departments and four patient services departments. The direct costs to each...

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Tacoma Hospital has three support departments and four patient services departments. The direct costs to each...

Tacoma Hospital has three support departments and four patient services departments. The direct costs to each of the support departments 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 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. Use an allocation table similar to Exhibit 6.7 to allocate the hospital’s overhead costs to the patient services departments.

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Answer 1

Answer #1

a.Allocation of support department overhead costs based on drivers will be as follows:

	Routine Care	Intensive Care	Diagnostic Services	Other Services
General Administration	$2,000,000*30/50 = $1,200,000	$2,000,000*4/50 = $160,000	$2,000,000*6/50 = $240,000	$2,000,000*10/50 = $400,000
Facilities	$5,000,000*40/60 = $3,333,333.33	$5,000,000*4/60 = $333,333.33	$5,000,000*6/60 = $500,000	$5,000,000*10/60 = $833,333.33
Financial Services	$3,000,000*30/50 = $1,800,000	$3,000,000*4/50 = $240,000	$3,000,000*6/50 = $360,000	$3,000,000*10/50 = $600,000
Total Overhead Costs	$6,333,333.33	$733,333.33	$1,100,000	$1,833,333.33

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Answer 2

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