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		$222,000
Depreciation expense		40,000
Utilities		23,300
Nurse salaries		333,400
Technician wages		109,300
	Total operating room overhead	$728,000

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

b. Bill Harris had a 3-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (a)?
$

c. During January, the operating room was used 194 hours. The actual overhead costs incurred for January were $49,300. Determine the overapplied operating overhead or underapplied operating overhead for the period.
$ overapplied

Answer 1

Solution:

a.	Total operating room overhead	$ 7,28,000
	Total estimated operating hours (52-2)*7*8	2800
	Predetermined overhead rate (728000/2800)	$           260	Per operating hour
b.	Hours the operating room used Bill Harris	3
	Predetermined overhead rate	$           260	Per operating hour
	Overhead to be charged (3*260)	$           780
c	Hours used in January	194
	Predetermned overhead rate	$           260	Per operating hour
	Overhead applied (194*260)	$     50,440
	Actual overhead incurred	$     49,300
	Overallplied overhead (50440-49300)	$       1,140

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