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

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

Required:
1. Prepare a table similar to Exhibit 12–5 which 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. Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: the costs incurred were $400,000, $50,000, $400,000, and $90,000, for facilities, utilities, general administration, and community outreach,respectively.

Transcribed Image Text:

Cost Pool Cost Allocation Base Annual Cost Facilities: $380,0000 Building depreciation Equipment depreciation Square feet of space Utilities Cubic feet of space 48,000 Waste disposal Water and sewer Cable TV and phone General administration Administrator Administrative staff Office supplies Budgeted number of employees 440,000 Community outreach: Public education Budgeted dollars of patient billings 80,000 School physical exams Patient Square Feet Cubic Feet of Employees Billings Number General Medicine Dvision Surgical Division ....". 15,000 8,000 Medical Support Dvision9,000 8,000 40,000 135,000 100,000 90,000 75,000 400,000 30 20 20 30 100 $4,000,000 2,500,000 1,500,000 Administrative Division - $ 8,000,000