This is an organizational chart for a hospital. The following table shows the cost application bases

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This is an organizational chart for a hospital. The following table shows the cost application bases used to distribute various costs.

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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?

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