Rose Hospital has two service departments (building services and food service), and three patient care units (intensive
Question:
Annual Cost *
(Millions)
Building Services....... $ 6.0
Food Service....... 3.0
Total overhead ....... $ 9.0
The following table summarizes the allocation of service department costs using the step- down method with Food Service as the first service department to be allocated:
Required:
(Round all allocation rates and all dollar amounts to two decimal places.)
a. Allocate the two service department costs to the three patient care units using the direct method of allocating service department costs.
b. Same as (a) except use the step- down allocation method with Building Services as the first service department allocated.
c. Write a short, nontechnical memo to management explaining why the sum of the two ser-vice department costs allocated to each patient care unit in (b) differs from the sum of the costs computed using the step- down method starting with FoodService.
Step by Step Answer:
Accounting for Decision Making and Control
ISBN: 978-0078025747
8th edition
Authors: Jerold Zimmerman