1) Suppose that hospital utilized direct method for cost allocation. Also, the cost driver for general administration and financial services is patient services revenue, whereas cost driver for facilities is space utilization.

a) What are the suitable allocation rates?

b) Use the allocation table to assign hospital’s overhead costs to patient services departments.

2) Suppose that hospital users salary dollars as cost driver for general administration, housekeeping labour hours as cost driver for facilities, and patient services revenue as cost driver for financial services. (Majority of costs of facilities department stem from provision of housekeeping services.)

a) What are the suitable allocation rates?

b) Use the allocation table to assign hospital’s overhead costs to patient services departments.

c) Which of the two cost driver schemes is better? Explain your answer.