Could you explain the three cost allocation methods and determine which method is best for the hospital if you are in charge of the finance department?

M3 – Class 1 – In healthcare, we have procedures and services that must be charged for

In healthcare, we have procedures and services that must be charged for. To charge for these services, we must come up with a cost of the service or procedure and then determine how much profit we want to make.

There are three different types of cost allocation methods: the direct method, the step-down method, and the reciprocal method.

Could you explain the three cost allocation methods and determine which method is best for the hospital if you are in charge of the finance department? Why would this be the best method? Could you give an example of how it benefits the hospital?