Predetermined Factory Overhead Rate Barley Medical Center has a single operating

Question

Predetermined Factory Overhead Rate Barley 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 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 Depreciation expense Utilities Nurse salaries Technician wages $179,300 32,300 18,800 269,300 88,300 $588,000 Total operating room overhead The overhead costs will be assigned to procedures based on the number of surgical room hours. Barley 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. a. Determine the predetermined operating room overhead rate for the year per hour b. Gretchen Kelton had a 5-hour procedure on January 15. How much operating room overhead would be charged to her procedure, using the rate determined in part (a)? c. During January, the operating room was used 186 hours. The actual overhead costs incurred for January were $38,200. Detrine the overapplied operating overhead or underapplied operating overhead for the period overapplied

Explanation / Answer

a. Determine the predetermined operating room overhead rate for the year.

Estimated annual overhead     = $5,88,000

Estimated total surgical hrs     = 2800 Hours (8 hours x 7 days x 50 wks)

Predetermined operating room overhead rate = $5,88,000 / 2800 Hours

= $210 per hour

b. Gretchen Kelton had a 5-hour procedure on January 15. How much operating room overhead would be charged to her procedure, using the rate determined in part (a)?

= 5 Hours x $210 per hour

= $1,050

c. During November, the operating room was used 186 hours. The actual overhead costs incurred for January were $38,200. Determine the overhead under- or over applied for the period.

Actual   = $38,200

Applied = $39,060 (186 x $210)

Overapplied = $860

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