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. (Hint: The step-down method of

cost allocation, reviewed in this problem, is covered in chapter 6 supplement.)

1. Use an allocation table to allocate the hospitals overhead costs to the patient services departments.
2. Compare the dollar allocations with those obtained in problem 6.4. Which departments are allocated more overhead costs? Which are allocated less?
3. Is the direct method or the step-down method better for cost allocation within St. Benedicts ? Explain your answer.