Question

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		$205,000
Depreciation expense		37,000
Utilities		21,500
Nurse salaries		307,800
Technician wages		100,700
	Total operating room overhead	$672,000

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 6-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 186 hours. The actual overhead costs incurred for January were $43,700. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$  

Answer 1

a. Calculate the estimated number of operating room hours for the year:-

(Total No of weeks in year – Shut down weeks in year) * No of days in week * No of operating hours per day

(52 – 2) * 7 * 8 hours = 2800 hours

b. Determine the predetermined operating room overhead rate for the year. :-

Total operating room overhead / Estimated number of operating room hours for the year

$672000 / 2800 hours = $240 per hour

c. Bill Harris had a 6-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (b)?

6 hours * Predetermined operating room overhead rate

6 hours * $240 = $1440

d. During January, the operating room was used 186 hours. The actual overhead costs incurred for January were $43,700. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number:-

Overhead Applied = 186 hours * $240 = $44640

Actual Overhead = $43700

Overapplied overhead = $44640 - $43700 = $940