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 $358,700 Depreciation expense 64,700 Utilities 37,600 Nurse salaries 538,600 Technician wages 176,400 Total operating room overhead $1,176,000 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. a. Determine the predetermined operating room overhead rate for the year. per hour b. Bill Harris had a 6-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 $79,700. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.

Answer 1

a.
Weeks in a year	52
Estimated hours for year = ( Weeks in a year - Weeks required for general repairs ) * Operating days in a week * Hours per day = ( 52 - 2 ) * 7 * 8	2800	hours
Predetermined operating room overhead rate = Estimated total operating room overhead for year / Estimated hours for year = 1176000 / 2800	420	per hour

b.
Operating room overhead charged to Bill Harris = Hours used on procedure * Predetermined operating room overhead rate = 6 * 420	2520

c.
Actual overhead costs incurred	79700
Overhead cost applied = Hours used in January * Predetermined operating room overhead rate = 194 * 420	81480
As the overhead applied is more than the actual overhead incurred, the overhead is overapplied by 1780 [ i.e. 81480 - 79700 ]

1780	Overapplied operating overhead