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			Total
Units (i.e., procedures) produced		670			800			1,470
Equipment-hours used		250			150			400
Direct labor-hours		510			190			700
Direct labor costs	$	40,800		$	11,400		$	52,200
Overhead costs							$	51,700

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	Amount			Related to:
Utilities	$	4,840		Equipment-hours
Supplies		12,580		Labor-hours
Indirect labor and supervision		20,320		Labor-hours
Equipment depreciation and maintenance		10,460		Equipment-hours
Miscellaneous		3,500		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

a.

Equipment related overhead costs = Utilities + Equipment depreciation and maintenance + Miscellaneous

= 4,840+10,460+3,500

= $18,800

Labor related overhead costs = Supplies +  Indirect labor and supervision

= 12,580+20,320

= $32,900

Predetermined overhead rate for equipment related overheads = Equipment related overhead costs/ Equipment-hours used

= 18,800/400

= $47 per equipment hour

Predetermined overhead rate for labor = Labor related overhead costs / Direct labor-hours

= 32,900/700

= $47 per direct labor hour

b.

	Hospital Patient	Other Patient
Direct labor cost	40,800	11,400
Equipment related overheads	250 x 47 = 11,750	150 x 47 = 7,050
Labor related overheads	510 x 47 = 23,970	190 x 47 = 8,930
Total cost	76,520	27,380
Number of units	670	800
Cost per unit (Total cost/ Number of units)	114.21	34.23

	Hospital Patient	Other Patient
Total cost	$76,520	$27,380
Cost per unit (Total cost/ Number of units)	$114.21	$34.23

Kindly comment if you need further assistance. Thanks‼!