Question

Saved McCullough Hospital uses a job-order costing system to assign costs to its patients. Its direct materials include a variety of items such as pharmaceutical drugs, heart valves, artificial hips, and pacemakers. Its direct labor costs (eg, surgeons, anesthesiologists. radiologists, and nurses) associated with specific surgical procedures and tests are traced to individual patients. All other costs, such as depreciation of medical equipment, insurance, utilities, incidental medical supplies, and the labor costs associated with around-the- clock monitoring of patients are treated as overhead costs Historically, McCullough has used one predetermined overhead rate based on the number of patient days (each night that a patient spends in the hospital counts as one patient-day) to allocate overhead costs to patients. Recently a member of the hospital's accounting staff has suggested using two predetermined overhead rates (allocated based on the number of patient-days) to improve the accuracy of the costs allocated to patients. The first overhead rate would include all overhead costs within the Intensive Care Unit (ICU) and the second overhead rate would include all Other overhead costs. Information pertaining to the hospital's estimated number of patient-days, its estimated overhead costs, and two of its patients-Patient A and Patient is provided below ICU Other Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient day Total 7,200 $9,076,00 54,100,000 304 $4,968,000 114 Patient B Patient $ 4,900 $ 26.000 $ 16,00 Direct materials Direct labor Total number of patient-days (including ICU) Number of patient-days spent in TCU Required: 1. Assuming McCullough uses only one predetermined overhead rate, calculate a. The predetermined overhead rate. b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient 2. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, calculate a. The ICU and Other overhead rates. b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient B (Round "Predetermined overhead rate" to 2 decimal places. Round your intermediate calculations and final answers to the nearest dollar amount.)

Answer 1

Answer is given below with full working

1.a Predetermined Overhead rate Total Overheads Number of Patient days $9,076,800 7,200 $1,260.67 Overheads allocated Patient B Number of Patient days Overheads allocated Patient A 13 $16,389 $22,692 Total Cost 1.b Patient A $4,900 $26,000 Patient B $6,600 $36,800 Direct Material Direct labor Variable Overheads ICU Others Overhead allocated Total Cost $1,4821 $16,389 $48,771 $1,824 $1,368 $22,692 $69,284 2.a 2 Overhead rates ICU pre-determined overhead rate Total Overheads Number of Patient days $4,108,800 2,400 $1,712.00 Others pre-determined overhead rate Total Overheads Number of Patient days $4,968,000 4,800 $1,035.00 Overheads allocated Patient A Patient B Number of Patient days (excluding ICU) ICU days $13,455 Overheads allocated Others ICU Total allocated Overheads $12,420 $10,272 $22,692 $13,455 Patient A $4,900 $26,000 Patient B $6,600 $36,800 Direct Material Direct labor Variable Overheads ICU Others Overhead allocated ICU Others Total Cost $1,824 $1,368 $1,482 $13,455 $45,837 $10,272 $12,420 $69,284