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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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The Two Cost Systems

Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service lines—the Emergency Room (ER) and the Operating Room (OR). SHH’s current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal $300,000. The table below shows expected patient volume for both lines.

Chapter 10, Problem 2MTC, The Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which

Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR.

To determine

Compute the nursing cost to be allocated between ER and OR departments.

Explanation

Traditional Costing:

Under traditional costing, overhead rates are computed by dividing the overhead cost by the cost driver. Cost driver could be labor hours, number of units, machine hours, and number of orders. Under traditional costing system a single rate is used to allocate all types of costs.

Allocation of nursing costs:

Particulars

ER

($)

OR

($)

Total

($)

Number of patients (A)1,0001,0002,000
Rate per patient 1 (B)150150 
Nursing costs

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