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McCullough Hospital uses a job - order costing system to assign costs to its patients. Its direct materials include a variety of items such as
McCullough Hospital uses a joborder 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 eg 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 aroundtheclock monitoring of patients are treated as overhead costs.
Historically, McCullough has used one predefermined overhead rate based on the number of patientdays each night that a patient spends in the hospital counts as one patientday to allocate overhead costs to patients. For the most recent period, this predetermined rate was based on three estimatesfixed overhead costs of $ variable overhead costs of $ per patientday, and a denominator volume of patientdays.
Recently a member of the hospital's accounting staff has suggested using two predetermined overhead rates allocated based on the number of patientdays 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 these two cost pools and two of the hospital's patientsPatient A and Patient Bis provided below:
tableEstimated number of patientdays,ICU,Other,TotalEstimated fixed overhead cost,Estimated variable overhead cost per patientday,$$$
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