a.

support patient services departmen

admin facilities fin svcs routine
sq ft 10,000 20,000 15,000 4,000,000
hse hrs 2000 5000 3000 150,000
revenue $30,000,000
salary $1,500,000 $3,000,000 $2,000,000 $12,000,000

cost driver revenue space revenue

rate $0.03 $0.66 $0.04

alloc admin -$1,500,000 $900,000

alloc fac -$3,000,000 $2,631,579
alloc fin svc -$2,000,000 $1,200,000

total allocated $4,731,579

b.
support patient services departmen
admin facilities fin svcs routine
sq ft 10,000 20,000 15,000 4,000,000
hse hrs 2000 5000 3000 150000
revenue $30,000,000
salary $1,500,000 $3,000,000 $2,000,000 $12,000,000

cost driver salary hours revenue

rate $0.05 $13.64 $0.04

alloc admin -$1,500,000 $600,000

alloc fac -$3,000,000 2,045,455
alloc fin svc -$2,000,000 $1,200,000

total allocated $3,845,455

c. differences: $886,124

d. Neither "scheme" is "better." The best cost driver is that whichis matched with how the costs
between the cost driver and the cost (causal link) that makes the cost driver "better" because i
activity is responsible for the costs. Those that use the resource should pay for the resource.
costs to rise, it is a better choice than another driver.
 patient services departments
intensive diagnostic other
400,000 60,000 100,000
30,000 15,000 25,000
$4,000,000 $6,000,000 $10,000,000
$5,000,000 $6,000,000 $7,000,000

$120,000 $180,000 $300,000

$263,158 $39,474 $65,789
$160,000 $240,000 $400,000

$543,158 $459,474 $765,789

patient services departments

intensive diagnostic other
400,000 60,000 100,000
30000 15000 25000
$4,000,000 $6,000,000 $10,000,000
$5,000,000 $6,000,000 $7,000,000

$250,000 $300,000 $350,000

409,091 204,545 340,909
$160,000 $240,000 $400,000

$819,091 $744,545 $1,090,909

-$275,933 -$285,072 -$325,120

ichis matched with how the costs behave. It is the link

the cost driver "better" because it best reflects what
urce should pay for the resource. So, if hours causes the
St. Benedict's hospital.
Three support departments
General Administration $2,000,000
Faciliites $5,000,000
Financial services $3,000,000

Department Patient service revenue Space (sq. ft) Housekeeping labor hours
Support:
General 10,000 2,000
Administration
Facilities 20,000 5,000
Financial service 15,000 3,000
Total 45,000 10,000

Patient service
Routine care $30,000,000 400,000 150,000
Intensive care $4,000,000 40,000 30,000
Diagnostic services $6,000,000 60,000 15,000
Other services $10,000,000 100,000 25,000

Total $50,000,000 $600,000 $220,000

Grant total $50,000,000 645,000 230,000

a) Devise and implement a cost allocation scheme that recognizes that Financial Services h
Answer:
Now that financial services has two separate functions, it would not be correct to u
them. We would need to look at different allocation bases. The billing services wou
revenue as it relates to patients ands payroll and personnel management can be all
the function is related to payroll.

General administration is allocated based on salary dollars and facilities based on

General Administration = $0.07

Facilities = $22.73

Financial Services
Billing and managerial reporting = $0.04
Payroll and personnel management = $0.03

The cost allocation is:

Patient Services Department

 Patient Services Department

Routine Intensive
Support Department Care Care
General Admin ($0.07 X sal 800,000 333,333
Facilities ($22.73 X house 3,409,091 681,818
Financial Services – billing 1,200,000 160,000
Financial Services – Payrol 400,000 166,667

Total indirect costs $5,809,091 $1,341,818

b) What, if any, additional information would be useful in completing Part a?

Answer:
Billing costs may be better allocated based on number of bills and payroll costs wo
based on number of employees. These additional information would make the alloc

c) What are the costs and benefits to St. Benedict’s of creating two cost pools for financial
Answer:
The extra costs result from tracking the costs in two separate cost pools instead of
in more accurate allocation of costs and so improves efficiency in the use of resourc
 Salary dollars

$1,500,000

$3,000,000
$2,000,000
$6,500,000

$12,000,000
$5,000,000
$6,000,000
$7,000,000

$30,000,000

$36,500,000

zes that Financial Services has two widely different functions.

would not be correct to use the same allocation base for
s. The billing services would be better related to patient
nel management can be allocated based on salary dollars as

ars and facilities based on housekeeping hours.

per dollar of salaries.

per housekeeping hour.

per dollar of patient services revenue.

per dollar of salaries.

ient Services Department

ient Services Department

Diagnostic Other
Services Services Total
400,000 466,667 2,000,000
340,909 568,182 5,000,000
240,000 400,000 2,000,000
200,000 233,333 1,000,000

$1,180,909 $1,668,182 $10,000,000

pleting Part a?

bills and payroll costs would be better allocated

ation would make the allocation more accurate.

two cost pools for financial services.

arate cost pools instead of one. The benefit results

ciency in the use of resources.