Question

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 640 860 1,500 Equipment-hours used 240 120 360 Direct labor-hours 480 180 660 Direct labor costs $ 38,400 $ 10,800 $ 49,200 Overhead costs $ 49,560 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 $ 4,800 Equipment-hours Supplies 12,600 Labor-hours Indirect labor and supervision 20,400 Labor-hours Equipment depreciation and maintenance 8,400 Equipment-hours Miscellaneous 3,360 Equipment-hours Required:

a. Compute the predetermined overhead rates assuming that Owl-Eye Radiologists uses 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.

Answer 1

a) Predetermine overhead rate

	Estimated overhead	estimated activity	Activity rate
On related equipment hour	16560	360 Hour	46 per equipment hour
On related labor hour	33000	660 Hour	50 per labor hour

b) Calculate total Cost and cost per unit

	Hospital Patients	Other Patients
Direct labor cost	38400	10800
Overhead related to equipment hour	240*46 = 11040	5520
Overhead related to labor hour	480*50 = 24000	180*50 = 9000
Total Cost	73440	25320
Units	640	860
Cost per Unit	114.75	29.44