Can you post the solutions to problems in Chapter 6

6.3: Assume that the hospital uses the direct method for cost allocation. furthermore, the cost driver for general admission and financial services is revenue, while the cost driver for facilities is space utilization.

A) What are the appropriate allocation rates?

B) Use the allocation table similar to Exhibit 6.7 to allocate the hospital's overhead costs to the patient services and departments.

6.4: Assume that the hospital uses 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 diver for financial services. (The majority of the cost of the facilities department stem from the provision of housekeeping services.)

A) what are the appropriate allocation rates?

B) Use an allocation table similar to the one used in problem 6.3 to allocate the hospital's overhead costs to the patient services department

C) compare the dollar allocations with those obtained in problem 6.3 - explain the differences

d) which of the two cost driver schemes is better? Explain your answer

Table 6.7

Patient Sevices include routine care, lab, radiology

Support	Routine Care	Lab	Radiology
Financial $ 0.05556	(16,000,000) = 888,960	(5,000,000)= 277,800	( 6,000,000) = 333,360
Facilities $12.64	(199,800) = 2,525,472	(39,600) =500,544	(61,200) = 773,568
Housekeeping $17.58	(76,000) = 1,336,080	(6,000) = 105,480	(9000) = 158,220
Administration 0.432	(5,709,000) = 2,466,288	(2,035,000) = 879,120	(2,439,000) = 1,053,648
Personnel 0.250	(5,709,000) = 1,427,250	(2,035,000) = 508,750	(2,439,000) = 609,750
Total indirect costs	8,644,050	2,271,694	2,928,546
Direct costs	5,500,000	3,300,000	2,280,000
Total costs	14,144,050	5,571,694	5,728,546

Total indirect costs: $13,844,290

Total costs: = $25,444,290

Use the following date for problems 6.3 and 6.4

Hospital has three support departments and four patient service departments. the direct cost to each of the support departments are: General admission: $2,000,000; Facilities: $5,000,000; Financial Services: $3,000,000

Department	Patient services revenue	Space (sq feet)	Housekeeping labor hours	Salary dollars
Support:
General admin		10,000	2,000	1,500,00
Facilities		20,000	5,000	3,000,000
Financial services		15,000	3,000	2,000,000
Total		45,000	10,000	6,500,000
Patient services:
Routine care	30,000,000	400,000	150,000	12,000,000
Intensive care	4,000,000	40,000	30,000	5,000,000
Diagnostic	6,000,000	60,000	15,000	6,000,000
Other	10,000,000	100,000	25,000	7,000,000
Total	50,000,000	600,000	220,000	30,000,000
Grand total	50,000,000	645,000	230,00	36,500,000