Question

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Poehling 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		$299,600
Depreciation expense		75,000
Utilities		32,000
Nurse salaries		278,500
Technician wages		126,900
	Total operating room overhead	$812,000

The overhead costs will be assigned to procedures, based on the number of surgical room hours. Poehling 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. Bill Harris had a five-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (a)?
$

c. During January, the operating room was used 240 hours. The actual overhead costs incurred for January were $67,250. Determine the overapplied operating overhead or underapplied operating overhead for the period.

Answer 1

Answer - a

Total no. of weeks in a year = 365 days / 7 days = 52 weeks

2 weeks shutdown = 50 weeks in a year

Tatal operating room overhead (A)	812000
Total expected no. of hours in a year (B) = 8 hours * 7 days * 50 weeks	2800
Predetermined overhead rate (C) = (A / B)	290	per hour

Answer - b

Operating room overhead charged = Hours used on procedure * Predetermined operating room overhead rate

= 5 * 290 = $ 1450

Answer - c

Actual overhead = 67250

Overhead applied = 240 hours * $ 290 = $ 69600

Applied overhead are more than actual overhead by $ 2350 (69600-67250) = OVER APPLIED

Overapplied operating overhead = $ 2350

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