Question

McCullough Hospital uses a job-order costing system to assign costs to its patients. Its direct materials include a variety of items such as pharmaceutical drugs, heart valves, artificial hips, and pacemakers. Its direct labor costs (e.g., surgeons, anesthesiologists radiologists, and nurses) associated with specific surgical procedures and tests are traced to individual patients. All other costs, such as depreciation of medical equipment, insurance, utilities, incidental medical supplies, and the labor costs associated with around-the- clock monitoring of patients are treated as overhead costs Historically, McCullough has used one predetermined overhead rate based on the number of patient-days (each night that a patient spends in the hospital counts as one patient-day) to allocate overhead costs to patients. Recently a member of the hospital's accounting staff has suggested using two predetermined overhead rates (allocated based on the number of patient-days) to improve the accuracy of the costs allocated to patients. The first overhead rate would include all overhead costs within the Intensive Care Unit (ICU) and the second overhead rate would include all Other overhead costs. Information pertaining to the hospital's estimated number of patient-days, its estimated overhead costs, and two of its patients-Patient A and Patient B-is provided below: Total 20, 000 $3, 200, 000 14, 000, 000 $17, 200, 000 ICU 2, 000 Estimated number of patient-days Estimated fixed overhead cost 18, 000 236 $ Estimated variable overhead cost per patient-day 96 Patient A PatientB $4, 500 6, 200 $ 25, 000 36, 000 Direct materials Direct labor Total number of patient-days (including ICU) nber of patlent-days spent in IcU Required: 1. Assuming McCullough uses only one predetermined overhead rate, calculate a. The predetermined overhead rate b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient B 2. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, calculate a. The ICU and Other overhead rates b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient B Round "Predetermined overhead rate" to 2 decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amount.) 1a. Predetermined overhead rate per patient-day 1b. Total cost for patient A Total cost for patient B 2a. Predetermined ICU overhead rate per patient-day Predetermined Other overhead rate per patient-day 2b. Total cost for patient A Total cost for patient B

Answer 1

1 a. Predetermined overhead rate= (2000*236+18000*96+17200000)/ 20000 = 970 per patient

1 b. Calculation of Total cost

	Patient A	Patient B
Direct material	4500	6200
Direct labor	25000	36000
Overhead cost	(14*970)= 13580	(21*970)= 20370
Total cost	43080	62570

2 a. Predetermined ICU overhead rate= (2000*236+3200000)/ 2000= 1836 per patient

Predetermined other overhead rate= (18000*96+18000000)/ 18000= 873.78 per patient

2 b. Calculation of Total cost

	Patient A	Patient B
Direct material	4500	6200
Direct labor	25000	36000
Overhead cost	(14*873.78)= 12233	(7*873.78+14*1836)= 31820
Total cost	41733	74020