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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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 $295,600
Depreciation expense 75,000
Utilities 32,000
Nurse salaries 278,500
Technician wages 126,900
Total operating room overhead $812,000

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.

  1. a. Calculate the estimated number of operating room hours for the year.
  2. b. Determine the predetermined operating room overhead rate for the year.
  3. c. Bill Harris had a five-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (b)?
  4. d. During January, the operating room was used 240 hours. The actual overhead costs incurred for January were $67.250. Determine the overhead under- or overapplied for the period.

(a)

To determine

Predetermined factory overhead rate

Normally, factory overhead costs are applied or allocated to cost of job based on predetermined factory overhead rate. The formula to calculate the predetermined factory overhead rate is as follows:

Predetermined factory overhead rate = Estimated total factory overhead costsEstimated activity rate

To calculate: the estimate number of operating room hours for the year.

Explanation

The estimate number of operating room hours is calculated as follows:

Estimated annual operating room hours}=Hours per day×Days per week

(b)

To determine
the predetermined surgicaloverhead rate of Company PMC.

(c)

To determine
the procedural overhead charged to operating room

(d)

To determine
the overhead under–or–over applied overhead during the year.

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