Question

Help Save & Exit Submit Check my work 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 (e.g.. 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 2.000 $ 3,200,000 236 Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient-day other 18.000 $14,000,000 5 96 Total 20,000 $17,200,000 Patient A $ 4,500 $ 25,000 Patient 8 $ 6, 200 $ 36.000 Direct materials Direct labor Total number of patient-days (including ICU) Number of patient-days spent in ICU Required: 1. Assuming McCullough uses only one predetermined overhead rate, calculate < Prey 8 of 8 ! Next

Answer 1

1a Calculation of predetermined overhead rate

Particulars	Amount
Variable overhead
- ICU (2000*$236)	$472000
- Other (18000*$96)	$1728000
Fixed overhead (Total)	$2200000
Total overhead	$17200000
Total patient days	20000
Overhead rate	$970 per day

1 b)

Total cost calculation = material + labor + overhead

Patient A = $4500 + $25000 + (14*$970) = $43080

Patient B = $6200 + $36000 + (21*$970) = $62570

2. Predetermined overhead rate

= (Variable + Fixed ) / patient days

ICU = ($472000 + $3200000) / 2000 = $1836

Other = ($1728000+$14000000)/18000 = 873.78

Total cost calculation = material + labor + ICU overhead + other overhead

Patient A = $4500 + $25000 + (0*$1836) + (14*$873.78)

= $41732.92 or $41733

Patient B = $6200 + $36000 + (7*$1836) + (14*$873.78)

= $67284.92 or $67285

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