Question

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		$298,900
Depreciation expense		53,900
Utilities		31,400
Nurse salaries		448,800
Technician wages		147,000
	Total operating room overhead	$980,000

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 3-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 186 hours. The actual overhead costs incurred for January were $63,700. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$  

Answer 1

Solution:

1. Determination of predetermined operating room overhead rate for the year:

Calculation of predetermined rate = estimated annual overhead/estimated number of hours

Total estimated operating room overhead for the year =$980000

Estimated number of annual surgical hours of the operating room = 8 hours x 7 days x 50 weeks =2,800 hours

(The operating room will be shut down for two weeks for general repairs, so number of estimated weeks in the year = total number of weeks in a year minus two weeks for general repairs

So, 52-2 = 50 weeks)

Thus, the predetermined operating room overhead rate =$980000/2,800 =$350 per surgical hour

1. Calculation of the operating room overhead charged to the 5-hour procedure conducted by Bill Harris:

predetermined overhead rate x actual number of hours used

$350x 3 hours =$1050

1. Determination of over or under applied overhead rate in the month of January:

Number of hours the operating room was used in January is 186 hours

Actual overhead cost =$63,700

Standard overhead cost for 240 hours =186 x $350 = $65100

Variance          =          Actual hours (Standard rate –actual rate)

= actual hours x standard rate –actual overhead incurred

= $65100-63700

Thus, over-applied overhead cost for the month of January =$ 1400