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6.5. Hint: The step-down method of cost allocation, reviewed in this problem, is covered in detail in the Chapter 6 Supplement.

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 other support departments.

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

Allocation rates need to be calculated based on the following table. How do I calculate allocation rates using the step down method?

Department Patient Services Revenue Space (Square Feet) Housekeeping Labor Hours Salary Dollars NA NA NA 10,000 20,000 15,000 45,000 2,000 5,000 3,000 10,000 $1,500,000 $3,000,000 $2,000,000 $6,500,000 Support: General Administration Facilities Financial Services Total Patient Services: Routine Care Intensive Care Diagnostic Services Others Services Total Grand Total $30,000,000 $4,000,000 $6,000,000 $10,000,000 $50,000,000 $50,000,000 400,000 40,000 60,000 100,000 600,000 645,000 150,000 30,000 15,000 25,000 220,000 230,000 $12,000,000 $5,000,000 $6,000,000 $7,000,000 $30,000,000 $36,500,000