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. For the most recent period, this predetermined rate was based on three estimates-fixed overhead costs of $17,800,000, variable overhead costs of $110 per patient- day, and a denominator volume of 20,000 patient-days. 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 these two cost pools and two of the hospital's patients-Patient A and Patient B-is provided below: Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient-day Direct materials Direct labor Total number of patient-days (including ICU) Number of patient-days spent in ICU ICU 2,000 $ 3,260,000 $ 236 1a. Predetermined overhead rate 1b. Total cost for patient A Patient A 1b. Total cost for patient B 2a. Predetermined ICU overhead rate $ 6,000 $ 28,750 2a. Predetermined Other overhead rate 2b. Total cost for patient A 2b. Total cost for patient B 14 0 Required: 1.Assuming McCullough continues to use only one predetermined overhead rate, calculate: other 18,000 $ 14,540,000 $ 96 Patient B $ 7,700 $ 39,000 a. The predetermined overhead rate. b. The total cost, including direct materials, direct labor, and applied overhead, assigned to Patient A and Patient B. 21 7 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. per patient-day (Round "Predetermined overhead rate" to 2 decimal places. Round other Intermediate calculations and final answers to the nearest dollar amount.) per patient-day per patient-day Total 20,000 $ 17,800,000

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. For the most recent period, this predetermined rate was based on three estimates-fixed overhead costs of $17,800,000, variable overhead costs of $110 per patient- day, and a denominator volume of 20,000 patient-days. 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 these two cost pools and two of the hospital's patients-Patient A and Patient B-is provided below: Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient-day Direct materials Direct labor Total number of patient-days (including ICU) Number of patient-days spent in ICU ICU 2,000 $ 3,260,000 $ 236 1a. Predetermined overhead rate 1b. Total cost for patient A Patient A 1b. Total cost for patient B 2a. Predetermined ICU overhead rate $ 6,000 $ 28,750 2a. Predetermined Other overhead rate 2b. Total cost for patient A 2b. Total cost for patient B 14 0 Required: 1.Assuming McCullough continues to use only one predetermined overhead rate, calculate: other 18,000 $ 14,540,000 $ 96 Patient B $ 7,700 $ 39,000 a. The predetermined overhead rate. b. The total cost, including direct materials, direct labor, and applied overhead, assigned to Patient A and Patient B. 21 7 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. per patient-day (Round "Predetermined overhead rate" to 2 decimal places. Round other Intermediate calculations and final answers to the nearest dollar amount.) per patient-day per patient-day Total 20,000 $ 17,800,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 20E: Activity-based costing for a service company Crosswinds Hospital plans to use activity-based costing...

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