Eagan Family Practice
Case 4 Questions
Cost Allocation Methods

1. Direct Method: In this method the hospital costs are divided into those costs attributable to the profit centers (direct costs). The overhead costs are direct costs to the support departments (cost centers), but when they are allocated these direct costs become indirect (overhead) costs to the profit centers (patient services department). The reciprocal method: This process uses an arrangement of simultaneous calculations to apportion overhead costs instantaneously in the midst of support and patient services departments. This technique is the most multifarious, but it is the utmost correct and it does the finest job of identifying intrasupport department services. Step-down: In this method all the direct costs of human resources are allocated to both the patient services department and the two other support departments. Hence, the step-down method recognizes some intrasupport department services; nonetheless, it does so in a reasonably simpleminded manner. Then the department is closed, and the process steps down to the support department that provides the next maximum amount of services to additional support departments. Double apportionment: The double apportionment method initially allocates each support department to the whole thing, including the other departments. Therefore, every maintenance department obtains an allocation from every support department. After the initial allocation, the step-down technique is used to allocate the costs that endure in the support departments after the leading apportionment, then for all support departments entails of direct costs and allocations from other support departments.
2. Base case conditions and Allocation Matrix:
Patient Services Departments

Adult Medicine
Obstetrics
Pediatrics
Total
Support Services Departments
Administration