Review Exhibit 7.5 , which outlines the the steps involved in the two-stage allocation process for overhead costs. Describe examples of each of these steps for a hospital where the cost object is a patient-day of hospital care (i.e. one day of care for one patient).

In developing your answer, you will need to identify appropriate production departments that are directly involved with the treatment of patients and support departments indirectly involved with treatment. You will also need to identify which support department costs should be allocated to which production departments, and then consequently to a patient-day for a particular area of hospital care. 

Exhibit 7.5

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Step 2 Support departments Quality Material Equipment Handling Department Maintenance Control STAGE Department Department ONE Step 1 Manufacturing overhead distribution (General manufacturing overhead Overhead Support department cost allocation (Support department costs are allocated to the production departments.) costs are assigned to production departments costs are distributed to all departments.) Production departments Welding Department Bending Department STAGE Overhead application TWO (All costs accumulated in the production departments are applied to products.)* Overhead costs are applied to products Products pass through production departments