Direct method for cost allocation
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St Mary's Hospital has three support departments and four patient services departments. The direct cost to each of the support departments is as follows:
General Administration $2,000,000
Facilities: $5,000,000
Financial Services: $3,000,000
1. Assume the hospital uses the direct method for cost allocation. Furthermore, the cost driver for the General Administration and Financial Services is patient services revenue, while the cost driver for Facilities is space utilization.
a. What are the appropriate allocation rates?
b. Allocate the hospital overhead costs to the patients services department.
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