Question

Owl-Eye Radiologists (OR) does various types of diagnostic imaging. Radiologists perform tests using sophisticated equipment. OR's management wants to compute the costs of performing tests for two different types of patients: those who are hospitalized (including those in emergency rooms) and those who are not hospitalized but are referred by physicians. The data for June for the two categories of patients follow:

	Hospital Patients			Other Patients			Total
Units (i.e., procedures) produced		700			840			1,540
Equipment-hours used		240			130			370
Direct labor-hours		500			190			690
Direct labor costs	$	40,000		$	11,400		$	51,400
Overhead costs							$	50,510

The accountant first assigns overhead costs to two pools: overhead related to equipment-hours and overhead related to labor-hours. The analysis of overhead accounts by the cost accountant follows:

Account	Amount			Related to:
Utilities	$	4,840		Equipment-hours
Supplies		12,650		Labor-hours
Indirect labor and supervision		20,470		Labor-hours
Equipment depreciation and maintenance		9,210		Equipment-hours
Miscellaneous		3,340		Equipment-hours

Required:

a. Compute the predetermined overhead rates assuming that Owl-Eye Radiologists uses equipment-hours to allocate equipment-related overhead costs and labor-hours to allocate labor-related overhead costs.

b. Compute the total costs of production and the cost per unit for each of the two types of patients undergoing tests in June. (Round "Cost per unit" to 2 decimal places.)

Answer 1

Answer:-a)-

Calculation of actvity rate
Activity cost pool	Activity Measure	Estimated overhead cost (a)	Expected activity (b)	Activity rate (c=a/b)
		$		$
Utilities	No. Of equipment hours	4840	370	13.08
Supplies	No. Of labor hours	12650	690	18.33
Indirect labor & supervision	No. Of labor hours	20470	690	29.67
Equipment depreciation & maintenence	No. Of equipment hours	9210	370	24.89
Miscellenous	No. Of equipment hours	3340	370	9.03
	Total	50510

b)-

Owl Eye Radiologists (OR)
Overhead cost (Activity Based Costing)
Particulars	K425	M67
	$	$
Direct labor costs	40000	11400
Utilities	240 equipment hour*$13.08 per hour=3139.20	130 equipment hour*$13.08 per hour=1700.40
Supplies	500 labor hour*$18.33 per hour=9165	190 labor hour*$18.33 per hour=3482.70
Indirect labor & supervision	500 labor hour*$29.67 per hour=14835	190 labor hour*$29.67 per hour=5637.30
Equipment depreciation & maintenence	240 equipment hour*$24.89 per hour=5973.60	130 equipment hour*$24.89 per hour=3235.70
Miscellenous	240 equipment hour*$9.06 per hour=2167.20	130 equipment hour*$9.03 per hour=1173.90
Total overhead cost (a)	75280	26630
Units produced (b)	700	840
Cost per unit (c=a/b)	107.54	31.70