Predetermined Factory Overhead Rate Poehling Medical Center

Predetermined Factory Overhead Rate Poehling Medical Center has a single operating room that Is used by local physiclans to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and Includes the direct materlals costs (drugs and medical devices), physiclan surgical time, and operating room overhead. On January 1 of the current year, the annual operating room overhead is estimated to be: Disposable suppliles Depreclation expense Utilities Nurse salaries Technician wages $375,800 67,800 39,400 564,300 184,700 $1,232,000 Total operating room overhead 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 b. Determine the predetermined operating room overhead rate for the year per hour c. Bill Harrls had a 3-hour procedure on January 22. How much operating room overhead would be charged to her procedure, using the rate determined in part (b)7 d. During January, the operating room was used 186 hours. The actual overhead costs incurred for January were $80,000. Determine the overapplied operating overhead or underapplied operating overhead for the perlod. Enter your answer as a positive number

Solution

A) Estimated Hours

Operating room hours = 8 hours * 7 days * 50 week = 2800 hours

Note - 1 . Total week in a year - two week per year for repairs

               = 52 - 2 = 50 week

B) Overhead rate for the year

Operating room overhead rate = Total Operating room overhead annual cost / Number of operating hours for the year

                                          = 1232000 / 2800

                                          = $ 440

C) Bill Harris has to pay

Operating room overhead would be charged to her = 3 hours * room rate

                                                                        = 3 * $440

                                                                        = $ 1320

D) Over Applied/ Underapplied Operating overhead

Budgeted overhead cost for January = Budgeted rate * Operating hours for the month of January

                                                    = $ 440 * 186 hours

                                                    = $ 81,840

Actual Overhead cost incurred for January = $ 80000

If the manufacturing overhead cost applied to the month is more than the manufacturing overhead cost actually

incurred during a period , the difference is known as Over Applied operating overhead .

Over Applied operating overhead = $ 81,840 - $ 80000

                                                      = $ 1840