Check my work McCullough Hospital uses a job-order costing system to assign cost
ID: 2611508 • Letter: C
Question
Check my work 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 es and Patient B-is provided below: 3,800 11,400 $6,726,000$6,558, 800 $13,284,800 7,600 Estimated fixed overhead cost 252 118 $ 6,300 8,000 Direct materials Direct labor Total number of patient-days (including ICU) Number of patient-days spent in ICU S 29,500 39,600 32 20 K Prex 7of7 Next>Explanation / Answer
Given
ICU
other
Estimated number of patient days
3800
7600
estimated fixed overhead cost
6726000
6558800
(i)
fixed cost per patient day
$ 1,770
$ 863
(ii)
variable cost per patient day
$ 252
$ 118
total cost(i+ii)
$ 2,022
$ 981
1.a.
Predetermined overhead rate per patient day
fixed cost + variable cost
1770+863+252+118
$ 3,003
1.b.
Patient -A
Patient -B
total number of patient days(including ICU)
27
32
LESS
Patient days spent in ICU
0
20
Patien days other than in ICU
27
12
(i)
Direct Materials
$ 6,300
$ 8,000
(ii)
Direct labour
$ 29,500
$ 39,600
(iii)
Overhead cost
(27*981; 32*3003)
$ 54,594
$ 96,096
Total cost(i+ii+iii)
$ 90,394
$ 143,696
2.a.
Predetermined ICU overhead rate
$ 2,022
per patient day
Predetermined other overhead rate
$ 981
per patient day
2.b.
total cost for patienT A
$ 90,394
total cost for patienT B
$ 143,696
Given
ICU
other
Estimated number of patient days
3800
7600
estimated fixed overhead cost
6726000
6558800
(i)
fixed cost per patient day
$ 1,770
$ 863
(ii)
variable cost per patient day
$ 252
$ 118
total cost(i+ii)
$ 2,022
$ 981
1.a.
Predetermined overhead rate per patient day
fixed cost + variable cost
1770+863+252+118
$ 3,003
1.b.
Patient -A
Patient -B
total number of patient days(including ICU)
27
32
LESS
Patient days spent in ICU
0
20
Patien days other than in ICU
27
12
(i)
Direct Materials
$ 6,300
$ 8,000
(ii)
Direct labour
$ 29,500
$ 39,600
(iii)
Overhead cost
(27*981; 32*3003)
$ 54,594
$ 96,096
Total cost(i+ii+iii)
$ 90,394
$ 143,696
2.a.
Predetermined ICU overhead rate
$ 2,022
per patient day
Predetermined other overhead rate
$ 981
per patient day
2.b.
total cost for patienT A
$ 90,394
total cost for patienT B
$ 143,696