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		680			870			1,550
Equipment-hours used		240			110			350
Direct labor-hours		470			160			630
Direct labor costs	$	37,600		$	9,600		$	47,200
Overhead costs							$	47,950

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	$	4,820		Equipment-hours
Supplies		12,580		Labor-hours
Indirect labor and supervision		18,920		Labor-hours
Equipment depreciation and maintenance		8,140		Equipment-hours
Miscellaneous		3,490		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

Predetermined Rate = Overhead cost/Total activity of Driver

Equipment Related Costs = (4820+8140+3490)/350

= $47 per equipment hour

Labor rated = (12580+18920)/630

= $50 per labor hour

b.Total cost = Labor cost + overhead cost

Hospital Patients

Total cost = 37,600+47*240+50*470 = $72,380

Cost per unit = 72,380/680 = $106.44

Other patients

Total cost = 9600 + 47*110 + 50*160 = $22,770

Per unit = 22,770/870 = $26.17