Question

Predetermined Factory Overhead Rate Poehling Medical Center has a single operating room that is used by local physicians to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and includes the direct materials costs (drugs and medical devices), physician surgical time, and operating room overhead. On January 1 of the current year, the annual operating room overhead is estimated to be: Disposable supplies $375,800 Depreciation expense 67,800 Utilities 39,400 Nurse salaries 564,300 Technician wages 184,700 Total operating room overhead $1,232,000 The overhead costs will be assigned to procedures, based on the number of surgical room hours. Poehling Medical Center expects to use the operating room an average of eight hours per day, seven days per week. In addition, the operating room will be shut down two weeks per year for general repairs.

Disposable supplies$375,800

Depreciation expense67,800

Utilities39,400

Nurse salaries564,300

Technician wages184,700

Total operating room overhead$1,232,000

a. Determine the predetermined operating room overhead rate for the year.
$ per hour

b. Bill Harris had a 4-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (a)?
$

c. During January, the operating room was used 194 hours. The actual overhead costs incurred for January were $83,500. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$ underapplied or overapplied?

Answer 1

a) The predetermined operating room overhead (OH) rate for the year is calculated as follows:-

Predetermined Operating Room OH per hour for the year

= Total Estimated Annual Operating Room OH/Total no. of surgical room hours

Total Estimated Annual Operating Room Overhead = $1,232,000

No. of weeks for which room is used = No. of weeks in a year - Weeks for which room remained shutdown

= 52 weeks - 2 weeks = 50 weeks

Total no. of surgical room hours

= No. of weeks for which room used*No. of days per week*No. of surgical hours per day

= 50 weeks*7 days per week*8 hours per day = 2,800 surgical room hours

Predetermined Overhead Rate = $1,232,000/2,800 hours = $440 per hour

Therefore the predetermined operating room overhead rate for the year is $440 per hour.

b) Operating room Overhead to be charged to Bill Harris' procedure

= No. of hours*Predetermined Overhead rate

= 4 hours*$440 per hour = $1,760

c) Applied Overhead for January = Actual Operating room hours*Predetermined rate per hour

= 194 hours*$440 per hour = $85,360

Actual Operating Overhead for January = $83,500

Over applied Overhead = Applied Operating Overhead - Actual Operating Overhead

= $85,360 - $83,500 = $1,860

(As the applied operating room overhead is more than the actual operating room overhead, the overhead is over applied by $1,860).