Chapter 3, Problem 27P

To determine

Pre- determined over head rate: Pre- determined over head rate is the indirect cost obtained in a specific period of time by dividing the manufacturing cost and the cost drivers.

Determine the various figures as mentioned in the question for McCullough

Answer to Problem 27P

Solution: The solution obtained is as under-

Particulars	Amount
Answer 1 (a)	$979.00
Answer 1 (b)
Patient A	$43,206.00
Patient B	$62,759.00
Answer 2 (a)
ICU	$1,926.00
Others	$873.78
Answer 2 (b)
Patient A	$41,732.89
Patient B	$67,914.89

Insights revealed by the staff accountant’s approach are explained as under.

Explanation of Solution

The calculations are obtained as under following the steps given in the brackets-

	Particulars	ICU	Other
1	Estimated number of patient days	2000	18000
2	Variable overhead cost per patient day	$326.00	$96.00
3	Estimated variable overhead cost ( 1 x 2 )	$6,52,000.00	$17,28,000.00
4	Estimated fixed overhead cost	$32,00,000.00	$1,40,00,000.00
5	Total estimated overhead cost ( 3 + 4 )	$38,52,000.00	$1,57,28,000.00
6	Total estimated overhead cost ( ICU + Other )	$ 1,95,80,000.00
7	Total estimated number of patient days	20000
8	The pre-determined overhead rate (6 divided by 7)	$979.00
9	The pre-determined overhead rate as suggested by staff accountant (5 divided by 1)	$1,926.00	$873.78

	Particulars	Patient A	Patient B
1	Direct Materials	$4,500.00	$6,200.00
2	Direct Labor cost	$25,000.00	$36,000.00
3	Number of patient days - ICU	0	7
4	Number of patient days - Others	14	14
5	The pre-determined overhead rate	$979.00	$979.00
6	Overhead cost
(A)	( 4 x 5 )	$13,706.00	$ -
(B)	[(3+4)x 5]	$ -	$20,559.00
7	Total cost( 1 + 2 + 6A )	$43,206.00	$ -
8	Total cost( 1 + 2 + 6B )	$ -	$62,759.00
	Particulars	ICU	Others
9	The pre-determined overhead rate as suggested by staff accountant	$1,926.00	$873.78
10	Patient A
(A)	Number of patient days	0	14
(B)	Overhead cost ( 9 x 10A )	$ -	$12,232.89
(C)	Direct Materials	$4,500.00
(D)	Direct Labor cost	$25,000.00
(E)	Total Cost ( B + C + D )	$41,732.89
11	Patient B
(A)	Number of patient days	7	14
(B)	Overhead cost ( 9 x 10A )	$13,482.00	$12,232.89
(C)	Direct Materials	$6,200.00
(D)	Direct Labor cost	$36,000.00
(E)	Total Cost ( B + C + D )	$67,914.89

Conclusion

Thus, the figures are obtained by the above mentioned calculations.