Solution
Aarti J answered on
Sep 03 2021
Direct 1
Cost Allocation Exercise
Use the Direct Method Approach
Projected Revenues by patient services department Amount
Routine care $ 24,000,000
Laboratory $ 15,000,000
Radiology $ 14,000,000
Total Revenues $ 53,000,000
Projected Costs for all departments:
Patient Services Departments (Direct Cost)
Routine care $ 18,000,000
Laboratory $ 8,000,000
Radiology $ 7,000,000
Total Costs $ 33,000,000
Support Services Department (Overhead Costs)
Financial Services $ 3,000,000
Facilities $ 5,600,000
Housekeeping $ 3,000,000
Administration $ 4,000,000
Human Resources $ 2,400,000
Totals Costs $ 18,000,000
Total Costs of both patient and support services $ 51,000,000
Projected Profit $ 2,000,000
Direct Cost drivers
Key Information
Cost Drivers Unit Measure
Financial Services Patient Services Revenue
Facilities Square Footage
Housekeeping Labor Hours
Administration Salary Dollars
Personnel Salary Dollars
Patient Services Square Ft Housekeeping Salary Dollars
Revenue Labor Hours
Routine care $ 24,000,000 185,000 72,000 $ 12,000,000
Laboratory $ 15,000,000 25,000 4,200 $ 3,000,000
Radiology $ 14,000,000 55,000 8,000 $ 3,500,000
Total $ 53,000,000 265,000 84,200 $ 18,500,000
COMPLETE THE TABLE (Need to calculate allocation rate)
Overhead Allocation Rates
Cost Pool Cost Driver Total utilization Allocation Rate
Financial Services $ 3,000,000 Patient Services Revenue $ 53,000,000 0.06
Facilities $ 5,600,000 Square...