Question

Predetermined Factory Overhead Rate

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		$264,700
Depreciation expense		47,700
Utilities		27,800
Nurse salaries		397,500
Technician wages		130,300
	Total operating room overhead	$868,000

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. Calculate the estimated number of operating room hours for the year.
hours

b. Determine the predetermined operating room overhead rate for the year.
$ per hour

c. Bill Harris had a 3-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (b)?
$

d. During January, the operating room was used 194 hours. The actual overhead costs incurred for January were $58,800. Determine the overapplied operating overhead or underapplied operating overhead for the period. Enter your answer as a positive number.
$  

Answer 1

a. Calculation of estimated number of operating room hours for the year

8 Hours per day * 7 Days per week * (Total weeks 52 - 2 weeks for repairs) = 2,800 hours per year

b. Predetermined operating room overhead rate

Formula = Total annual overhead / Total operating room hours per year

Total overheads = 8,68,000 $

Total operating room hours = 2,800 hours

Predetermined overhead rate = 8,68,000 $ / 2,800

Predetermined overhead rate = 310 $ per hour

C.Overhead charged to Bill Harris for 3 hour procedure.

Overhead assigned = 3 * 310 $ = 930 $

D.Calculation of under or over applied operating overhead for the period.

Overhead applied - Overhead incurred = Over applied operating overhead

Overhead incurred - Overhead applied = Under applied operating overhead.

Overhead applied = 194 hours * 310 $ = 60,140 $

Overhead incurred = 58,800 $

Over applied operating overhead = 60,140 - 58,800 = 1,340 $