COST ALLOCATION QUESTION (SHOW WORK)

A medical facility has two service departments (i.e., accounting services (AC) and Information Management Services (IM)) and two patient care units (i.e., intensive care (IC), and general medicine (GM)).

The Accounting Department costs ($3.8 million) are allocated to users based on the number of transactions posted to the General Ledger generated by each respective user.

Information Management Services ($4.8 million) costs are allocated to users based on the number of gigabytes of storage dedicated to each respective user.

The following two tables summarize the annual costs of the two service departments and the utilization or consumption of each service department by the other departments

Annual Cost (Millions)

Accounting Services $3.80

Information Management Services 4.80 Total Overhead $8.60

	Service Levels
	Transactions	Gigabytes
Accounting	70,000	8
IM	40,000	5
Intensive Care (IC)	1,100,000	7
General Medicine	600,000	9
Total	1,810,000	29

3) Using the Reciprocal Cost allocation method determine the total Service department costs allocated to both Intensive Care and General Medicine:

a. Using simultaneous equations.

b. Using matrices.

4) Compute the transfer price for each of the above cost allocation methods (see the following table) for both per transaction and per gigabyte:

	Transfer Price Per
	Transaction	Gigabyte
Direct Method	?	?
Stepdown AC First	?	?
Stepdown IM First	?	?
Reciprocal	?	?