Cost Distribution Using Allocation Bases; HospitalRefer to the organization chart for Rock...

Cost Distribution Using Allocation Bases; Hospital

Refer to the organization chart for Rocky Mountain General Hospital given in the preceding problem. Ignore the rest of the data in that problem. The following table shows the cost allocation bases used to distribute various costs among the hospital’s divisions.

Cost Pool	Cost Allocation Base	Annual Cost
Facilities:
Building depreciation	Square feet of space	$1 90,000
Equipment depreciation
Insurance
Utilities:
Electricity	Cubic feet of space	24,000
Waste disposal
Water and sewer
Cable1V and phone
Heat
General administration:
Administrator	Budgeted number of employees	220,000
Administrative staff
Office supplies
Community outreach:
Public education	Budgeted dollars of patient billings	40,000
School physical exams

Shown below are the amounts of each cost allocation base associated with each division.

	Square Feet	Cubic Feet	Number of Employees	Patient Billings
General Medicine Division	15,000	135,000	30	$2,000,OOO
Surgical Division	8,000	100,000	20	1,250,000
Medical Support Division	9,000	90,000	20	750,000
Administrative Division	8,000	75,000	30	0
Total	40,000	400,000	100	$4,000.00

Required:

1. Prepare a table similar to Exhibit 12- 5 that distributes each of the costs listed in the preceding table to the hospital’s divisions.

2. Comment on the appropriateness of patient billings as the basis for distributing community outreach costs to the hospital’s divisions. Can you suggest a better allocation base?

3. Is there any use in allocating utilities costs to the divisions? What purposes could such an allocation process serve?

4. Build a spreadsheet:

 

 

Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: the costs incurred were $200,000, $25,000,

 

$200,000, and $50,000, for facilities, utilities, general administration, and community outreach, respectively.