Swedish Hospital uses a step-down method to allocate 25 indirect service department costs (information technology, laundry, security, records, food service, etc.) to the six direct patient care units (surgery, maternity, psychiatry, etc.). The Food Service (FS) department (patient and staff dining) currently is the third service department to be allocated in the step-down methodology. Swedish is revamping its step-down methodology and is considering moving FS from its 3rd place position to the 23rd position.
Required:
a. FS costs are allocated based on the number of meals served. Does the FS allocated cost per meal served increase or decrease if FS moves from its 3rd place position to the 23rd position in the step-down methodology? Also, describe exactly what causes the allocated cost per meal to increase or decrease.
b. Describe the issues that Swedish management should consider before moving FS from its 3rd place position to the 23rd position in the step-down methodology.