Question

Wellspring Clinic has two patient services departments: Medicine and Surgery. The patient services departments are supported...

Wellspring Clinic has two patient services departments: Medicine and Surgery. The patient services departments are supported by the Housekeeping, Financial Services, and Administration departments. The Administration Department of Wellspring Clinic has compiled the following information:

Department Direct Costs Square Feet No. of Employees

Housekeeping $ 200,000 3,000 250

Administration $ 400,000 5,000 500

Financial Services $ 300,000 2,000 100

Medicine $1,000,000 53,000 2,600

Surgery $1,500,000 40,000 2,300

Wellspring has determined that the cost driver for the Housekeeping Department is square feet and that the cost driver for Administration and Financial Services is the number of employees. Using the step-down method of cost allocation, what is the allocation of financial services costs to Medicine? Assume Housekeeping's costs are allocated first, followed by Administration's and then by Financial services'.

a. $159,184

b. $161,306

c. $158,080

d. $162,344

e. $165,657

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Answer #1

Allocation of Financial service cost to Medicine department-

Total Finance service cost = $ 300,000

we are given that cost driver for finance service cost is the number of employees. This means that Finance service cost will be allocated between Medicine and surgery on the basis of their number of employees.

Finance service cost to be allocated to medicine department

=   

=

Finance service cost to be allocated to medicine department = $159,184

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