Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery. Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.
-The total amount of Information Technology Department cost allocated to the two operating departments is closest to:
A) $37,740
B) $24,997
C) $98,705
D) $33,474

Question

Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.  Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.
-The total amount of Information Technology Department cost allocated to the two operating departments is closest to:
A) $37,740 
B) $24,997 
C) $98,705 
D) $33,474

Quizplus · Accepted Answer

We need to allocate the IT department costs on the basis of computer workstations. From the given data, we know that the IT department cost is $75,480 and there are 60 computer workstations in the hospital. Therefore, the cost of each computer workstation is $75,480/60 = $1,258.

Now, we need to allocate this cost to Surgery and Recovery departments based on the number of computer workstations used by each department. From the given data, we know that Surgery uses 20 computer workstations and Recovery uses 18 computer workstations.

Allocated IT department cost to Surgery = 20 * $1,258 = $25,160
Allocated IT department cost to Recovery = 18 * $1,258 = $22,580

Total IT department cost allocated = $25,160 + $22,580 = $37,740

Therefore, the closest option is A) $37,740.

Holmon Surgical Hospital Uses the Direct Method to Allocate Service