Selected data for the three support and four patient services departments are as follows:

Patient Space

Services (Square Housekeeping Salary

Department Revenue Feet) Labor Hours Dollars

Support:

General 10,000 2,000 $1,500,000

Administration

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 Services 6,000,000 60,000 15,000 6,000,000

Other Services 10,000,000 100,000 25,000 7,000,000

Total $50,000,000 600,000 220,000 $30,000,000

Grand total $50,000,000 645,000 230,000 $36,500,000

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 driver for Financial Services. (The majority of the costs of the Facilities

Department are devoted to housekeeping services.)

a.What are the appropriate allocation rates?

b. Allocate the hospitals overhead costs to the patient services departments.

c. Compare the dollar allocations with those obtained in Problem 4.6. Explain the

differences.

d.Which of the two cost driver schemes is better? Explain your answer.