Question

Poehling 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 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 $281,800 Depreciation expense 50,800 Utilities 29,600 Nurse salaries 423,200 Technician wages 138,600 Total operating room overhead $924,000 The overhead costs will be assigned to procedures, based on the number of surgical room hours. Poehling 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. Bill Harris had a 7-hour procedure on January 22. How much operating room overhead would be charged to his 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 $60,000. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.

Answer 1

a)

Estimated number of operating room hours for the year = Number of operating hours in a day x Operating days in week x Number of operating weeks

= 8 x 7 x 50

= 2,800

Predetermined overhead rate = Estimated overheads/Estimated operating room hours

= 924,000/2,800

= $330 per operating room hour

b)

Overhead applied = Actual operating room hours used x  Predetermined overhead rate

= 7 x 330

= $2,310

c)

Overhead applied in January = Actual operating room hours used x  Predetermined overhead rate

= 186 x 330

= $61,380

Actual overheads = $60,000

Over applied overhead = Overhead applied - Actual overhead

= 61,380 - 60,000

= $1,380