Question

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 $278,900 Depreciation expense 69,800 Utilities 29,800 Nurse salaries 259,300 Technician wages 118,200 Total operating room overhead $756,000 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. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.1. Determine the predetermined operating room overhead rate for the year.
2. Bill Harris has a five-hours procedure on Jan 22. How much operating room overhead would be charged to his procedure, using the rate determined in part 1?
3. During January, the operating room was used 240 hours. The actual overhead costs incurred for January were $67,250. Determine the overhead under or over applied for the period.

Answer 1

Answer:

Results are below.

Explanation:

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Total number of surgical room hours= (8*7)*52= 2,912 hours

Predetermined manufacturing overhead rate= 756,000 / 2,912

Predetermined manufacturing overhead rate= $259.61 per surgical room hour

Now, we can allocate costs using the following formula:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 259.61*5

Allocated MOH= $1,298.05

Finally, the under/over allocation for January:

Under/over applied overhead= real overhead - allocated overhead

Allocated overhead= 259.61*240= $62,306.4

Under/over applied overhead= 67,250 - 62,306.4

Underapplied overhead= $4,943.6