Question

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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 B-is provided below. Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient-day ICU Other 3.800 7,600 $ 6,726,000 $6,558,800 2525 118 Total 11.400 $13, 284,800 Patient $ 6,300 $ 29,500 5 Patient B 8.00 39.600 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: a. The predetermined overhead rate. b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient B. 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 other intermediate calculations and final answers to the nearest whole dollar amount.) per patient day 1a Predetermined overhead rate 1b Total cost for patient Total cost for patient 2a Predetermined ICU overhead rate Predetermined the overhead rate 2 Total cost for patient A Total cost for patient B per patient-day per patient-day

Answer 1

1a.
	ICU	Other	Total
Estimated number of patient days	3800	7600	11400
(*) Estimated variable overhead cost per patient day	252	118
Estimated total variable overhead cost	957600	896800	1854400
(+) Estimated fixed overhead cost	6726000	6558800	13284800
Estimated total overhead cost	7683600	7455600	15139200

Predetermined overhead rate = Estimated total overhead cost / Estimated total number of patient days = 15139200 / 11400

1328

per patient day

1b.
	Patient A	Patient B
Direct materials	6300	8000
Direct labor	29500	39600
Overhead cost applied ( Total number of patient days * Predetermined overhead rate )	35856	42496
Total cost	71656	90096

Total cost for patient A	71656
Total cost for patient B	90096

2a.
	ICU	Other
Estimated fixed overhead cost	6726000	6558800
(/) Estimated number of patient days	3800	7600
	1770	863
(+) Estimated variable overhead cost per patient day	252	118
Predetermined overhead rate	2022	981

Predetermined ICU overhead rate	2022	per patient day
Predetermined Other overhead rate	981	per patient day

2b.
	Patient A	Patient B
Total number of patient days	27	32
(-) Number of patient days spent in ICU	0	20
Other Patient days	27	12

	Patient A		Patient B
Direct materials		6300		8000
Direct labor		29500		39600
Overhead allocation :
ICU ( Predetermined ICU overhead rate * Number of patient days in ICU )	0		40440
Other ( Predetermined other overhead rate * Other patient days )	26487		11772
Total overhead applied		26487		52212
Total cost		62287		99812

Total cost for patient A	62287
Total cost for patient B	99812