BM1701

PROBLEM SOLVING (4 items X 5 points)

Perform what is being asked. Write your answers on the spaces provided.

A Community Hospital has two (2) service departments: Maintenance and Food Services. The hospital has three (3)
patient care units, namely: General Medicine, OB, and Surgery.

Additional information are as follows:

 Amount of cost to be allocated:

Maintenance P 8,000,000
Food Services P 3,000,000

 Allocation method:
a) Maintenance Costs are allocated based on square foot assigned to the unit.
b) Food Service Costs are allocated based on number of meals served to the unit.

EXPECTED UTILIZATION RATES

SQ. FT. Meals Served
Food Services 10,000 30,000
Maintenance 10,000 10,000
Surgery 20,000 40,000
OB 30,000 30,000
General Medicine 30,000 90,000
TOTAL 100,000 200,000

1. Using the information, allocate the costs of the two (2) service departments with the three (3) patient care units using:
Direct Method, Step Method – Maintenance First, Step Method – Food Services First, and Reciprocal Method.

05 Activity 1 *Property of STI

Page 1 of 2
DIRECT METHOD
ALLOCATED MAINTENANCE COSTS ALLOCATED FOOD SERVICE COSTS
Food Services 800,000 450,000
Maintenance 800,000 150,000
Surgery 1,600,000 600,000
OB 2,400,000 450,000
General Medicine 2,400,000 1,350,000

STEP METHOD – MAINTENANCE FIRST

ALLOCATED MAINTENANCE COSTS ALLOCATED FOOD SERVICE COSTS
Food Services 888,888.89
Maintenance 8,000,000
Surgery 1,777,777.78 972,222.22
OB 2,666,666.67 1,458,333.33
General Medicine 2,666,666.67 1,458,333.33

STEP METHOD – FOOD SERVICES FIRST

ALLOCATED MAINTENANCE COSTS ALLOCATED FOOD SERVICE COSTS
Food Services
Maintenance 176,470.59
Surgery 705,882.35 2,044,117.65
OB 529,411.76 1,533,088.24
General Medicine 1,588,235.29 4,599,264.71
 ALGEBRAIC METHOD

M = 8,000 + .10
M = 8,000,000 + 300,000 + 1%
M = 8,300,000 + 1%
M = 8,383,000

F = 3,000,000 + .10

F = 3,000,000 + .10 (8,383,000)

F = 3,000,000 + 838,300
F = 3,838,300

Rubric for scoring:

Criteria Points
Complete solution and correct answer 5
Minimal miscalculation; correct answer 1-4
No answer 0