A.) Compute appropriate allocation rates
Overhead	Cost	Cost driver	Driver units	Appropriate allocations rates (1/2)
General administration cost	$2,000,000.00	Salary dollars	$30,000,000.00	0.07
Financial service cost	$5,000,000.00	Patient revenue service	$50,000,000.00	0.1
Facilities service cost	$3,000,000.00	Housekeeping labor	$220,000.00	13.64
Total	$10,000,000.00

B.) Allocations of overhead costs to patient service department
Support departments	Patient service department
	Routine care	Intensive care	Diagnostic service	Other services	Total
Salary dollars	$12,000,000.00	$5,000,000.00	$6,000,000.00	$7,000,000.00	$30,000,000.00
Patient revenue service	$30,000,000.00	$4,000,000.00	$6,000,000.00	$10,000,000.00	$50,000,000.00
Housekeeping labor	$150,000.00	$30,000.00	$15,000.00	$25,000.00	$220,000.00
General administrative cost ($0.004)	$800,000.00	$333,333.00	$400,000.00	$466,667.00	$2,000,000.00
Financial service cost	$3,000,000.00	$400,000.00	$600,000.00	$1,000,000.00	$5,000,000.00
Facilities service cost	$2,045,455.00	$409,091.00	$204,545.00	$340,909.00	$3,000,000.00
Total overhead allocated	$5,845,455.00	$1,142,424.00	$1,204,545.00	$1,807,576.00	$10,000,000.00

C.)
Overhead	6.3	6.4
	Appropriate allocation rates
General administrative cost	0.04	0.07
Financial service cost	0.1	0.1
Facilities service cost	5	13.64

6.5

Now assume that the hospital uses the step-down method for cost allocation, with salary dollars as the cost

driver for general administration, housekeeping labor hours as the cost driver for facilities, and patient services

revenue as the cost driver for financial services. Assume also that the general administration department

provides the most services to other support departments, followed closely by the facilities department. The

financial services department provides the least services to the other support departments.

A. Use an allocation table to allocate the hospitals overhead costs to the patient services departments.

B. Compare the dollar allocations with those obtained in Problem 6.4. Explain the differences.

C. Is the direct method or the step-down method better for cost allocation within St. Benedicts?

Explain your answer.