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 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: 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 3,000 $ 5,346,000 $ 240 Patient A $5,500 $ 27,500 19 0 1a. Predetermined ICU overhead rate 1a. Predetermined Other overhead rate 1b. Total cost for patient A 1b. Total cost for patient B 2a. Predetermined overhead rate 2b. Total cost for patient A 2b. Total cost for patient B Other 42,000 $ 38,514,000 $ 100 Patient B $ 7,200 $ 38,000 Required: 1. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, calculate: per patient-day per patient-day 24 12 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. 2. Assuming McCullough continues to use 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. per patient-day Total 45,000 $ 43,860,000 (Round "Predetermined overhead rate" to 2 decimal places. Round other intermediate calculations and final answers to the nearest dollar amount.)

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 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: 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 3,000 $ 5,346,000 $ 240 Patient A $5,500 $ 27,500 19 0 1a. Predetermined ICU overhead rate 1a. Predetermined Other overhead rate 1b. Total cost for patient A 1b. Total cost for patient B 2a. Predetermined overhead rate 2b. Total cost for patient A 2b. Total cost for patient B Other 42,000 $ 38,514,000 $ 100 Patient B $ 7,200 $ 38,000 Required: 1. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, calculate: per patient-day per patient-day 24 12 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. 2. Assuming McCullough continues to use 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. per patient-day Total 45,000 $ 43,860,000 (Round "Predetermined overhead rate" to 2 decimal places. Round other intermediate calculations and final answers to the nearest dollar amount.)

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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