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bacd 2:47 AM Not Charging E Introduction to Managerial Accounting, 8th Edition Aa 4 aA PROBLEM 2-20 Plantwide versus Multiple Predetermined Overhead Rates: Service Industry

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bacd 2:47 AM Not Charging E Introduction to Managerial Accounting, 8th Edition Aa 4 aA PROBLEM 2-20 Plantwide versus Multiple Predetermined Overhead Rates: Service Industry LO2-1, LO2-2, LO2-3, LO2-4 McCullough Hospital uses a job-order costing system to assign 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 93 2:47 AM Not Charging Introduction to Managerial Accounting, 8th Edition Aa a Tests are traced to individual patents. All other cOsts, such depreciation of medical equipment, insurance, utilities, incidental medical supplies, and the labor costs associated with around-the-clock monitoring of patients are treated as 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. 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 the hospital's estimated number of patient-days, its estimated overhead costs, and two of its patients-Patient A and Patient B--is provided below: Total Other ICU 20,000 2,000 18,000 Estimated number of patient-days $3,200,000 $14,000,000 $17,200,000 Estimated fixed 93 Not Charging D 248 AM ad Introduction to Managerial Accounting, 8th Edition Aa aA ICU Other Total Estimated number of patient-days 2,000 18,000 20,000 $3,200,000 $14,000,000 $17,200,000 Estimated fixed overhead cost Estimated variable overhead cost per patient-day $236 $96 page 94 Patient A Patient B $4,500 $6,200 Direct materials Direct labor $36,000 $25,000 14 21 Total number of patient-days (including ICU) Number of patient-days spent in ICU 0 7 Required: Assuming McCullough uses only one predetermined overhead rate, calculate: 1. E G 93 ad 2:48 AM Not Charging Introduction to Managerial Accounting, 8th Edition Aa QA Required: Assuming McCullough uses only one predetermined 1. overhead rate, calculate: a. The predetermined overhead rate. b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient B. 2. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, calculate: a. The ICU and Other overhead rates b. The total cost, including direct materials, direct labor and applied overhead, assigned to Patient A and Patient B. What insights are revealed by the staff accountant's approach? 3. Plantwide Versus Multiple PROBLEM 2-21 Predetermined Overhead Rates LO2-1, LO2-2 Mason Company has two manufacturing departments Machining and Assembly. The company considers all of its manufacturing overhead costs to be fixed costs. It provided the following estimates at the beginning of the year as well as the following information with respect to Jobs A and B: 94 oi

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