Chapter 12, Problem 43P

Refer to the organization chart for Rocky Mountain General Hospital given in the preceding problem. Ignore the rest of the data in that problem. The following table shows the cost allocation bases used to distribute various costs among the hospital’s divisions.

Shown below are the amounts of each cost allocation base associated with each division.

Required:

1. 1. Prepare a table similar to Exhibit 12–5 that distributes each of the costs listed in the preceding table to the hospital’s divisions.
2. 2. Comment on the appropriateness of patient billings as the basis for distributing community outreach costs to the hospital’s divisions. Can you suggest a better allocation base?
3. 3. Is there any use in allocating utilities costs to the divisions? What purposes could such an allocation process serve?
4. 4. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: the costs incurred were $200,000, $25,000, $200,000, and $50,000, for facilities, utilities, general administration, and community outreach, respectively.