The Cost Allocation Dilemma at St. Benedict's Hospital: Deciphering the Data

Based on the data provided, the appropriate allocation rates for the support departments at St. Benedict's Hospital are as follows:

General Administration: $2,000,000 / $50,000,000 = 0.04 or 4%

Facilities: $5,000,000 / 230,000 square feet = $21.74 per square foot

Financial Services: $3,000,000 / $50,000,000 = 0.06 or 6%

Using the direct method for cost allocation, the overhead costs would be allocated to the patient services departments as follows:

Routine Care: (0.04 x $30,000,000) + ($21.74 x 400,000) + (0.06 x $12,000,000) = $1,200,000 + $8,696,000 + $720,000 = $10,616,000

Intensive Care: (0.04 x $4,000,000) + ($21.74 x 40,000) + (0.06 x $4,000,000) = $160,000 + $869,600 + $240,000 = $1,269,600

Diagnostic Services: (0.04 x $6,000,000) + ($21.74 x 60,000) + (0.06 x $6,000,000) = $240,000 + $1,304,400 + $360,000 = $1,904,400

Other Services: (0.04 x $10,000,000) + ($21.74 x 150,000) + (0.06 x $10,000,000) = $400,000 + $3,261,000 + $600,000 = $4,261,000

The better cost-driver scheme depends on the specific circumstances and goals of St. Benedict's Hospital. The direct method with patient services revenue as the cost driver for Financial Services (problem 4.6) focuses on allocating costs based on the revenue generated by patient services, which may be suitable if the hospital wants to link costs to revenue-generating activities.

On the other hand, the direct method with salary as the cost driver for General Administration, housekeeping labor hours as the cost driver for Facilities, and patient services revenue as the cost driver for Financial Services (problem 4.8) provides a more detailed allocation by considering specific activities and resource usages. This method may be more appropriate if the hospital wants to allocate costs based on different cost drivers that reflect actual resource consumption.