Question

Owl-Eye Radiologists (OR) does various types of diagnostic imaging. Radiologists perform tests using sophisticated equipment. OR'S management wants to compute the costs of performing tests for two different types of patients: those who are hospitalized (including those in emergency rooms) and those who are not hospitalized but are referred by physicians. The data for June for the two categories of patients follow. Hospital Patients Other Patients 800 660 110 Units (i.e., procedures) produced Equipment-hours used Direct labor-hours Direct labor costs Overhead costs 240 490 $39,200 Total 1,460 350 640 $48, 200 $49,098 150 $9,000 The accountant first assigns overhead costs to two pools: overhead related to equipment-hours and overhead related to labor-hours. The analysis of overhead accounts by the cost accountant follows. Account Utilities Supplies Indirect labor and supervision Equipment depreciation and maintenance Miscellaneous Amount $ 4,740 12,590 20,050 8,330 3, 380 Related to: Equipment-hours Labor-hours Labor-hours Equipment-hours Equipment-hours Required: a. Compute the predetermined overhead rates assuming that Owl-Eye Radiologists uses equipment-hours to allocate equipment- related overhead costs and labor-hours to allocate labor-related overhead costs. b. Compute the total costs of production and the cost per unit for each of the two types of patients undergoing tests in June.

Answer 1

Part A

	Overhead rate
Equipment-Hour Related	$47 per hour
Direct-Labor Hour Related	$51 per hour

Account	Equipment-Hour Related	Direct-Labor Hour Related
Utilities	4740
Supplies		12590
Indirect labor and supervision		20050
Equipment depreciation and maintenance	8330
Miscellaneous	3380
Total overhead	16450	32640
÷ Total equipment hours	350
÷ Total labor hours		640
Overhead rate	$47	$51

Part B

	Hospital patients	Other patients
Total cost	$75470	$21820
Cost per patient	$114.35	$27.28

	Hospital patients	Other patients	Total
Equipment hours used	240	110	350
Direct labor-hours	490	150	40
Direct labor costs	39200	9000	48200
Overhead costs:
Equipment-hour related overhead (240*47); (110*47)	11280	5170	16450
Direct labor-hours related overhead (490*51); (150*51)	24990	7650	32640
Total cost	75470	21820	97290
Patients	660	800
Cost per patient	$114.35	$27.28