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:

	ICU			Other			Total
Estimated number of patient-days		3,000			42,000			45,000
Estimated fixed overhead cost	$	5,346,000		$	38,514,000		$	43,860,000
Estimated variable overhead cost per patient-day	$	240		$	100

	Patient A			Patient B
Direct materials	$	5,500		$	7,200
Direct labor	$	27,500		$	38,000
Total number of patient-days (including ICU)		19			24
Number of patient-days spent in ICU		0			12

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.)

*Stuck on 2b*

Answer 1

1	A	Fixed Overhead		43,860,000
		Variable Overhead		4,920,000
		Total Overhead		48,780,000
		Total number of Patient days		45,000
		Pre determined OH rate		1,084.00
		Pre Determined Overhead rate=Total Overhead/Allocation basis(Number of Patient days)
1	B			Patient A	Patient B
		Direct Material		5,500	7,200
		Direct Labor		27,500	38,000
		Overhead***		20,596	26,016
		Total Cost		53,596	71,216
		***
		Total number of Patient Days(Including ICU)		19	24
		Pre determined OH rate		1,084	1,084
		Overhead		20,596	26,016
2	A			ICU	Other
		Estimated number of patient days		3,000	42,000
		Estimated Fixed Overhead Cost		5,346,000	38,514,000
		Estimated Varuable OH Cost Per Patient days		240	100
		Total Over head		6,066,000	42,714,000
				(5346000+(3000*240)	(38514000+(42000*100)
		Predetermined-ICU & Other rate		2,022.00	1,017.00
2	B			Patient A	Patient B
		Direct Material		5,500	7,200
		Direct Labor		27,500	38,000
		Overhead***		19,323	36,468
		Total Cost		52,323	81,668
		***
				Patient A	Patient B
		Total number of Patient Days(Including ICU)		19	24
		Number of patient days spent in ICU		-	12
		Pre determined ICU rate	2022.00		24,264	(12*2022)
		Pre determined Other rate	1017.00	19,323	12,204
				(19*1017)	(12*1017)
		Overhead		19,323	36,468
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