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Directions – Chapter 6 HOMEWORK Please try your best on these answers. The more you work on these the better off you will be for the test! THERE WILL BE VARIATION IN YOUR ANSWERS TO WHAT I HAVE IN...

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Directions – Chapter 6 HOMEWORK
Please try your best on these answers. The more you work on these the better off you will be for the test!

THERE WILL BE VARIATION IN YOUR ANSWERS TO WHAT I HAVE IN CANVAS. This is
due to different rounding rules. I WILL CONSIDER THIS WHEN GRADING. I will REVIEW
ALL homework submissions and award points due to this issue in this lesson. If you grade is low
please do not freak-out, I will address very soon.
Use the following information for problems #1-6.
St. Anthony’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 $3,000,000
Facilities $6,000,000
Financial Services $7,000,000

Selected data for the three support and four patient services departments are shown below:
Department
Patient Services Space Housekeeping Salary
Revenues (square feet) Labor Hours Dollars
Support

General Administration 10,000 2,000 $ 1,500,000
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 $ 40,000,000 400,000 150,000 $ 22,000,000
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 $ 60,000,000 600,000 220,000 $ 40,000,000
Grand Total $ 60,000,000 645,000 230,000 $ 46,500,000
#1). Use the information for St. Anthony’s. Use the direct method of cost allocation.
Assume that $5,000,000 of financial services costs is related to billing and managerial
eporting and $2,000,000 is related to payroll and personnel management activities. What is the
allocation rate for the Financial Services cost pool allocated based on patient services
evenues?
Hint: Find the most appropriate cost driver. The $5,000,000 of the Financial Services cost is
elated to ‘Billing and Managerial Reporting.’ The cost driver will be Total Patient Services
Revenue.



#2). Use the information for St. Anthony’s. Use the direct method of cost allocation.
Assume that $5,000,000 of financial services costs is related to billing and managerial
eporting and $2,000,000 is related to payroll and personnel management activities. What is
the allocation rate for the Financial Services cost pool allocated based on salary dollars?
Hint: Find the most appropriate cost driver. The ‘Payroll and Personnel Management
Activities’ cost of $2,000,000 is directly related to salary dollars. This means the cost driver
should be the total salary dollars for providing patient care.


#3). Use the information for St. Anthony’s. Use the direct method of cost allocation.
Assume that $5,000,000 of financial services costs is related to billing and managerial
eporting and $2,000,000 is related to payroll and personnel management activities. How much
of the $5,000,000 financial services cost pool is allocated to Intensive Care?


Hint: Use the cost driver you calculated for ‘Financial Services- Billing and Managerial
Reporting’ (problem #1) and then multiple that by the Patient Service Revenue for
Intensive Care. Create a table it will help.
#4). Use the information for St. Anthony’s. Use the direct method of cost allocation.
Assume that $5,000,000 of financial services costs is related to billing and managerial
eporting and $2,000,000 is related to payroll and personnel management activities. How much
of the $2,000,000 financial services cost pool is allocated to Diagnostic Services?
Hint: Use the cost driver you calculated for ‘Payroll and Personnel Management ’ (problem
#2) and then multiple that by the Salary for Diagnostic Services. Create a table it will help.



#5). Use the information for St. Anthony’s. Use the direct method of cost allocation.
Assume that the hospital uses salary dollars as the cost driver for general
administration and housekeeping labor hours as the cost driver for facilities.
Assume that $5,000,000 of financial services costs is related to billing and managerial
eporting and $2,000,000 is related to payroll and personnel management activities. What is the
total of indirect costs allocated to Routine Services?
Hint: You have already figured out the two Financial Service Allocation Rates – all we have
to do is to calculate the rates for General Administration and Facilities and then apply the
ates to the Patient Services Departments. Do one step at a time and create a table.


#6). Use the information for St. Anthony’s. Use the direct method of cost allocation.
Assume that the hospital uses salary dollars as the cost driver for general administration and
housekeeping labor hours as the cost driver for facilities. Assume that $5,000,000 of financial
services costs is related to billing and managerial reporting and $2,000,000 is related to payroll
and personnel management activities. What is the total of indirect costs allocated to Other
Services?
Hint: You have already figured out the two Financial Service Allocation Rates – all we have
to do is to calculate the rates for General Administration and Facilities and then apply the
ates to the Patient Services Departments. Do one step at a time and create a table.
Use the following info for questions #7-#14
St. Vincent’s Hospital has three support departments and four patient service departments.
The direct cost to each of the support departments are as follows:
General Administration $7,000,000
Maintenance $4,000,000
Employee Benefits $5,000,000
Selected data for the three support and four patient service departments are shown below:


Patient Services Space # of Full-Time Salary Department Equivelent Revenues (square feet) Dollars Employees
Support
General Administration

8,000 15 $ 2,500,000
Maintenance 10,000 75 $ 3,500,000
Employee Benefits 7,000 50 $ 3,000,000
Total 25, XXXXXXXXXX,000,000

Patient Services
Routine Care $ 40,000,000 500,000 800 $ 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 1,550 $ 36,000,000
Grand Total $ 63,000,000 805,000 1,690 $ 45,000,000


#7). Use the information for St. Vincent’s Hospital. Assume that the hospital uses the
direct method for cost allocation.
Furthermore, the costs driver 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. What is the allocation rate for General
Administration.
Hint: First, determine the cost driver for General Administration. Second, then divide the
cost pool by the cost driver. That is the allocation rate.
#8). Use the information for St. Vincent’s Hospital. Assume that the hospital uses the
direct method for cost allocation.
Furthermore, the costs driver 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. What is the allocation rate for Employee Benefits.
Hint: First, determine the cost driver for Employee Benefits. Second, then divide the cost
pool by the cost driver. That is the allocation rate.
#9). Use the information for St. Vincent’s Hospital. Assume that the hospital uses the direct
method for cost allocation. Furthermore, the costs driver 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. What is the total of indirect
costs allocated to Intensive Care?
Hint: You have already calculated two of the three allocation rates. Once you finish the
emaining rate – then you can allocate the cost pools to the Patient Service departments.
Create a table to allocate all the costs to all the areas.


#10). Use the information for St. Vincent’s Hospital. Assume that the hospital uses the direct
method for cost allocation. Furthermore, the costs driver 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. What is the total of indirect
costs allocated to Obstetrics Services?
Hint: You have already calculated two of the three allocation rates. Once you finish the
emaining rate – then you can allocate the cost pools to the Patient Service departments.
Create a table to allocate all the costs to all the areas.


#11). Use the information for St. Vincent’s Hospital. Assume the hospital uses salary
dollars as the costs driver for general administration and employee benefits, and space
utilization as the cost driver for maintenance. What is the allocation rate for Maintenance?
Hint: Caution – two of the underlying assumptions have changed. You will need to
ecalculate – this problem. Make sure you read everything carefully.
#12). Use the information for St. Vincent’s Hospital. Assume the hospital uses salary
dollars as the costs driver for general administration and employee benefits, and space
utilization as the cost driver for maintenance. What is the allocation rate for Employee
Benefits?
Hint: Caution – two of the underlying assumptions have changed. You will need to
ecalculate – this problem. Make sure you read everything carefully.
#13). Use the information for St. Vincent’s Hospital. Assume the hospital uses salary
dollars as the costs driver for general administration and employee benefits, and space
utilization as the cost driver for maintenance. What is the total of indirect costs allocated to
Routine Care?
Hint: You have already calculated all of the allocation rates. Once you finish the remaining
ate – then you can allocate the
Answered Same DayMar 07, 2022

Solution

Bhavani answered on Mar 08 2022
74 Votes
Direct method of cost allocation:
1) Allocation rate = Financial services costs for (Billing and managerial accounting )/ Patient service revenue

=$5,000,000/ 60,000,000
=$0.08333333333 per dollar of patient service revenue
_____________________________________________________________________
2) Allocation rate
= Financial services costs (payroll and personnel management activities) / Total salary dollars
=$2,000,000 / $40,000,000
=$0.05 per dollar of per dollar of salaries
_____________________________________________________________________
3) Financial services cost pool (Billing and managerial accounting) is allocated to Intensive Care
= Financial services costs for (Billing and managerial accounting) allocation rate * Intensive care revenue
= $0.08333333333 * 4,000,000
= $333333
_____________________________________________________________________
4) Financial services cost pool (Payroll and personnel management activities) is allocated to Diagnostic Services.
= Financial services costs for (Payroll and personnel management activities) ) allocation rate * Diagnostic Services salary
=$0.05 * $6,000,000
=$300,000
_____________________________________________________________________

5)Allocation rate for General Administration
=General administration cost / Total salary
=$3,000,000 / $40,000,000
= $0.075 per dollar of salaries
Allocation rate for Facilities
= Facilities / Total house keeping labor hours
= $6,000,000 / 220,000
= $27.27 per house keeping hou
Total indirect costs allocated to Routine Services:
$1,650,000 + $4,090,500 + $3333333 +$1,100,000
=$10173833
Working notes:
General Administration = Routine care salary * G.A allocation rate
= $22,000,000 * $0.075
=$1,650,000

Facilities = Routine care house keeping labor hours * Facilities allocation rate
= 150,000 * $27.27
=$4,090,500
Financial services costs fo
Billing and managerial accounting = Routine care patient revenue * allocation rate
= $40,000,000 * $0.08333333333
=$3333333

Financial services costs fo
payroll and personnel management activities = Routine care salary * allocation rate
=$22,000,000 * $0.05
=$1,100,000
___________________________________________________________________________
6) Total indirect costs allocated to Other services:
=$525,000 + $681,750 + $833,333 + $350,000
=$2390083
Working notes:
General Administration = Other services salary * ...
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