Reference no: EM131130647
St. Luke's hospital has three support departments and four patient services departments. The direct costs to each of the support departments are as follows:
General Administration $4,000,000
Maintenance $5,000,000
Employee Benefits $4,000,000
Patient Space Number of Salary Dollars
Services (sq ft) FTEs
Department Revenue
Support
General 8,000 15 $2,500,000
Administration
Maintenance 10,000 75 3,500,000
Employee Benefits 7,000 50 3,000,000
Total 25,000 140 9,000,000
Patient Services:
Routine Care $ 40,000,000 500,000 700 $18,000,000
Intensive Care 7,000,000 45,000 200 6,000,000
Obstetrics Services 4,000,000 35,000 150 4,000,000
Other Services 12,000,000 200,000 400 8,000,000
Total $63,000,000 780,000 1,450 $36,000,000
Grand Total $63,000,000 805,000 1,590 $45,000,000
Assume the hospital uses the direct method for cost allocation. Furthermore, the cost drive for general administration is patient services revenue, the cost driver for maintenance is space utilization, and the cost driver for employee benefits is the number of full time equivalent employees.
a. What are the appropriate allocation rates?
b. Use an allocation table similar to Exhibit 6.7 to allloate the hospital's overhead costs to the patient services department.
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