Question

Barley 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		$324,500
Depreciation expense		58,500
Utilities		34,000
Nurse salaries		487,300
Technician wages		159,700
	Total operating room overhead	$1,064,000

The overhead costs will be assigned to procedures based on the number of surgical room hours. Barley 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. Gretchen Kelton had a 6-hour procedure on January 15. How much operating room overhead would be charged to her 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 $72,100. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$  SelectoverappliedunderappliedItem 4

Answer 1

• All working form part of the answer
• Overapplied overhead refers to a situation when Applied Overhead are in excess of Actual Overhead.
• Answer is given on three basis: If Rate is not rounded-off, if rate rounded off to nearest dollar, and if Rate rounded off to nearest cent.
• Working

A	Total days in a year	356
B	Days shutdown [2 weeks]	14
C=A x B	Total working days in a year	342
D	No. of hours per day	8
E=C x D	Total hours in a year	2736

• Requirement a): Predetermined rate calculation

	Not rounded off	Rounded off to nearest $	Rounded off to nearest cent
Total Overhead	1064000	1064000	1064000
Total hours	2736	2736	2736
Predetermined overhead rate (in $)	388.8889	389	388.89

• Requirement b)

	Not rounded off	Rounded off to nearest $	Rounded off to nearest cent
Hours worked	6	6	6
Predetermined overhead rate	388.8889	389	388.89
Overhead charged using the rate (in $)	2333.333	2334	2333.34

• Requirement c)

Overhead is ‘Over applied’ as Overhead to be charged is more than Actual Overhead incurred

	Not rounded off	Rounded off to nearest $	Rounded off to nearest cent
Hours worked in January	194	194	194
Predetermined overhead rate	388.8889	389	388.89
Overhead to be charged (in $)	75444.44	75466	75444.66
Actual overhead (in $)	72100	72100	72100
Overapplied Overhead (in $)	3344.444	3366	3344.66