Question

Barley 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		$333,100
Depreciation expense		60,100
Utilities		34,900
Nurse salaries		500,100
Technician wages		163,800
	Total operating room overhead	$1,092,000

The overhead costs will be assigned to procedures based on the number of surgical room hours. Barley 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. Gretchen Kelton had a 8-hour procedure on January 15. How much operating room overhead would be charged to her 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 $70,900. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$  

Answer 1

Part-a:

Computation the predetermined rate is:

Predetermined rate = Total value of operating overhead / Total number of hours

= $1,092,000 / 2,800 hours

= $390

Hence, the predetermined rate is $390.

Working note:

Computation the total number of hours is:

Total number of hours = (Number of weeks in a year - Number of shut down weeks) * Number of hours per day * Number of days in a week

= (52 - 2) * 8 * 7

= 50 * 8 * 7

= 2,800 hours

Hence, the total number of hours is 2,800.

Part-b:

Computation the value of operating room overhead is:

Value of operating room overhead = Number of procedure hours * Predetermined rate

= 8 hours * $390

= $3,120

Hence, the value of operating room overhead is $3,120.

Part-c:

Computation the over-applied overhead is:

Over-applied overhead = Amount of applied overhead - Amount of actual overhead

= $72,540 - $70,900

= $1,640

Hence, the over-applied overhead is $1,640.

Working note:

Computation the amount of applied overhead is:

Amount of applied overhead = Predetermined rate * Number of hours used

= $390 * 186 hours

= $72,540

Hence, the amount of applied overhead is $72,540.