Owl-Eye Radiologists (OR) does various types of diagnostic imaging. Radiologists perform tests using sophisticated equipment. OR's management wants to compute the costs of performing tests for two different types of patients: those who are hospitalized (including those in emergency rooms) and those who are not hospitalized but are referred by physicians. The data for June for the two categories of patients follow. Hospital Patients Other Patients Total Units (i.e., procedures) produced 660 810 1,470 Equipment-hours used 220 150 370 Direct labor-hours 480 170 650 Direct labor costs $ 38,400 $ 10,200 $ 48,600 Overhead costs $ 48,500 The accountant first assigns overhead costs to two pools: overhead related to equipment-hours and overhead related to labor-hours. The analysis of overhead accounts by the cost accountant follows. Account Amount Related to: Utilities $ 4,860 Equipment-hours Supplies 12,590 Labor-hours Indirect labor and supervision 19,260 Labor-hours Equipment depreciation and maintenance 8,440 Equipment-hours Miscellaneous 3,350 Equipment-hours Required: a. Compute the predetermined overhead rates assuming that Owl-Eye Radiologists use equipment hours to allocate equipment-related overhead costs and labor-hours to allocate labor-related overhead costs. b. Compute the total costs of production and the cost per unit for each of the two types of patients undergoing tests in June.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

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Owl-Eye Radiologists (OR) does various types of diagnostic imaging. Radiologists perform tests using sophisticated equipment. OR's management wants to compute the costs of performing tests for two different types of patients: those who are hospitalized (including those in emergency rooms) and those who are not hospitalized but are referred by physicians. The data for June for the two categories of patients follow.

	Hospital Patients	Other Patients	Total
Units (i.e., procedures) produced		660			810		1,470
Equipment-hours used		220			150		370
Direct labor-hours		480			170		650
Direct labor costs	$	38,400		$	10,200	$	48,600
Overhead costs						$	48,500

The accountant first assigns overhead costs to two pools: overhead related to equipment-hours and overhead related to labor-hours. The analysis of overhead accounts by the cost accountant follows.

Account	Amount	Related to:
Utilities	$	4,860	Equipment-hours
Supplies		12,590	Labor-hours
Indirect labor and supervision		19,260	Labor-hours
Equipment depreciation and maintenance		8,440	Equipment-hours
Miscellaneous		3,350	Equipment-hours

Required:

a. Compute the predetermined overhead rates assuming that Owl-Eye Radiologists use equipment hours to allocate equipment-related overhead costs and labor-hours to allocate labor-related overhead costs.

b. Compute the total costs of production and the cost per unit for each of the two types of patients undergoing tests in June.

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