Step-Down Method
Pleasant View Hospital has three service departments—Food Services, Administrative Services, and X-ray Services. The costs of these departments are allocated by the step-down method, using the allocation bases and in the order shown below:
Service Department | Costs Incurred | Base for Allocation |
Food Services | Variable Fixed | Meals served Peak-period needs |
Administrative Services | Variable Fixed | Files processed 10% X-ray Services, 20% Outpatient Clinic, 30% OB Care, and 40% General Hospital |
X-ray Services | Variable Fixed | X-rays taken Peak-period needs |
Estimated cost and operating data for all departments in the hospital for the forthcoming month are presented in the following table:
| Food Services | Admin. Services | X-Ray Services | Outpatient Clinic | OB Care | General Hospital | Total |
Variable costs | $ 73,150 | $ 6,800 | $38,100 | $11,700 | $ 14,850 | $ 53,400 | $198,000 |
Fixed costs | 48,000 | 33,040 | 59,520 | 26,958 | 99,738 | 344,744 | 612,000 |
Total costs | $121,150 | $39,840 | $97,620 | $38,658 | $114,588 | $398,144 | $810,000 |
Meals served |
| 1,000 | 500 |
| 7,000 | 30,000 | 38,500 |
Percent of peak-period Food Services needs |
| 2% | 1% |
| 17% | 80% | 100% |
Files processed |
|
| 1,500 | 3,000 | 900 | 12,000 | 17,400 |
X-rays taken |
|
|
| 1,200 | 350 | 8,400 | 9,950 |
Percent of peak-period X-ray Services needs .... |
|
|
| 13% | 3% | 84% | 100% |
All billing in the hospital is done through the Outpatient Clinic, OB Care, or General Hospital. The hospital's administrator wants the costs of the three service departments allocated to these three billing centers.
Required:
Prepare the cost allocation desired by the hospital administrator. Include under each billing center the direct costs of the center as well as the costs allocated from the service departments.
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