Question

Predetermined Factory Overhead Rate

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		$230,600
Depreciation expense		41,600
Utilities		24,200
Nurse salaries		346,200
Technician wages		113,400
	Total operating room overhead	$756,000

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. Calculate the estimated number of operating room hours for the year.
hours

b. Determine the predetermined operating room overhead rate for the year.
$ per hour

c. Bill Harris had a 7-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (b)?
$

d. During January, the operating room was used 194 hours. The actual overhead costs incurred for January were $51,200. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$  

Answer 1

Poehling Medical Center

1. Estimated number of operating room hours for the year:

Estimated number of annual surgical hours of the operating room = 8 hours x 7 days x 50 weeks =2,800 hours

(The operating room will be shut down for two weeks for general repairs, so number of estimated weeks in the year = total number of weeks in a year minus two weeks for general repairs

So, 52-2 = 50 weeks)                                                                                                                              

1. Determination of predetermined operating room overhead rate for the year:

Calculation of predetermined rate = estimated annual overhead/estimated number of hours

Total estimated operating room overhead for the year =$1,232,000

Thus, the predetermined operating room overhead rate =$756,000/2,800 =$270 per surgical hour

1. Calculation of the operating room overhead charged to the 7-hour procedure conducted by Bill Harris:

= predetermined overhead rate x actual number of hours used

$270 x 7 hours =$1,890

1. Determination of over or under applied overhead rate in the month of January:

Number of hours the operating room was used in January is 194

Actual overhead cost =$51,200

Applied overhead cost for 194 hours =194 x $270 = $52,380

Overapplied operating overhead = applied overhead – actual overhead = 52,380 – 51,200 = $1,180

Thus, overapplied operating overhead cost for the month of January =$1,180

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