McCullough Hospital uses a job-order costing system to assign costs to its patie
ID: 2567745 • Letter: M
Question
McCullough Hospital uses a job-order costing system to assign costs to its patients. Its direct materials include a variety of items such as pharmaceutical drugs, heart valves, artificial hips, and pacemakers. Its direct labor costs (e.g., surgeons, anesthesiologists, radiologists, and nurses) associated with specific surgical procedures and tests are traced to individual patients. All other costs, such as depreciation of medical equipment, insurance, utilities, incidental medical supplies, and the labor costs associated with around-the clock monitoring of patients are treated as overhead costs.
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:
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 your intermediate calculations and final answers to the nearest dollar amount.)
Predetermined overhead rate ________
Total cost for patient A _________
Total Cost for patient B___________
Predetermined ICU overhead rate __________
Predetermined Other overhead rate__________
Total cost for patient A __________
Total cost for patient B ___________
ICU Other Total Estimated number of patient-days 3,700 22,200 25,900 Estimated fixed overhead cost $ 6,119,800 $ 23,110,200 $ 29,230,000 Estimated variable overhead cost per patient-day $ 305 $ 99Explanation / Answer
1.
a. Predetermined overhead rate
b.
2.
a.
ICU Overhead rate
Other overhead rate
b.
Variable overhead cost (3700 x $305) + (22200 x $99) $3326300 Fixed overhead cost 29230000 Total overhead cost $32556300 Estimated no. of patient days 25900 Predetermined overhead rate $1257