Question:
This is an organizational chart for a hospital. The following table shows the cost application bases used to distribute various costs.
|
Cost Pool
|
Cost Allocation Base
|
Annual Cost
|
|
Facilities
|
Square feet of space
|
$380,000
|
|
Utilities
|
Cubic feet of space
|
$48,000
|
|
General Administration
|
Budget number of employees
|
$440,000
|
|
Community Outreach
|
Budgeted dollars of patient billing
|
$80,000
|
Allocation base associated with each division
|
Square Feet
|
Cubic Feet
|
Number of Employees
|
Patient Billing
|
|
General Medicine
|
15,000
|
135,000
|
30
|
$4,000,000
|
|
Surgical Division Support
|
8,000
|
100,000
|
20
|
$2,500,000
|
|
Medical Support
|
9,000
|
90,000
|
20
|
$1,500,000
|
|
Administrative Division
|
8,000
|
75,000
|
30
|
0
|
|
Total
|
40,000
|
400,000
|
100
|
$8,000,000
|
What is the appropriateness of patient billing as the basis for distributing community outreach costs to the hospital division? Is there a better allocation base?