Service Company Use of Predetermined Overhead Rate [LO 6, 7, 9] Southwest Commun

Question

Service Company Use of Predetermined Overhead Rate [LO 6, 7, 9]

Southwest Community Hospital uses a job-order costing system to track charges for each patient. The following charges relate to Candice O'Dea, who had laparoscopic knee surgery:


Pharmacy $290
Sterile supply 1,170
Supplies, other 4,260
Operating room service (nursing staff) 4,160
Anesthesia 1,070
Anesthesiologist 3,070

Southwest charges patients for the use of the operating room based on a predetermined overhead rate. The estimated overhead costs of the operating room are $5,975,000, and the activity base is available hours of 2,390.
Calculate the predetermined overhead rate for the operating room, and determine the overhead charge to Candice. Assume that her surgery took 3 hours in the operating room.

Predetermined overhead rate $ 2500
Total overhead charge to Candice $


Calculate the total cost for the knee surgery.

$

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Explanation / Answer

Predetermined overhead rate:

= 5,975,000/2,390
= $2,500 per hour


Total overhead charge to Candice:

= 2,500 x 3
= $7,500

Calculate the total cost for the knee surgery:

Direct costs


Pharmacy $290
Sterile supply 1,170
Supplies, other 4,260
Operating room service (nursing staff) 4,160
Anesthesia 1,070
Anesthesiologist 3,070   is $ 14020

Overhead charge = 2,500 x 3 =$ 7,500

Total Cost $21,520

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