Volume-Based Versus ABC Overhead Rate Medical Arts Hospital (MAH) uses a hospital-wide overhead rate based on nurse-hours. The intensive care unit (ICU), which has 30 beds, applies overhead using patient-days. Its budgeted cost and operating data for the year follow:
Hospital Budget Information
| |
Hospital total overhead | $57,600,000 |
Hospital total nurse-hours
| 1,152,000 |
Budget Cost Driver Information for ICU for the Month of June
| |||
Cost Pool | Budget Cost | Cost Driver | Budget Cost Driver Activity |
Facilities and equipment | $2,400,000 | Number of patient days | 7,500 |
Nursing care | 3,000,000 | Number of nurse hours | 80,000 |
In June, MAH’s intensive care unit had the following operating data:
nurse-hours | 81,000 |
patient-days | 7,250 |
Required
1. Calculate the ICU’s overhead costs for the month of June using
a. The hospitalwide rate
b. The ICU departmentwide rate
c. The cost driver rates for the ICU department
2. Explain the differences and determine which overhead assignment method is more appropriate.
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