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 $18,000,000, 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:
Assuming McCullough continues to use only one predetermined
overhead rate, calculate:Required:
- Mccullough Hospital Uses A Job Order Costing System To Assign Costs To Its Patients Its Direct Materials Include A Vari 1 (49.51 KiB) Viewed 73 times