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MeCullough Hospital uses a job-order costing system to assign costs to its patents. Its direct materials include a vartety of items such as pharmaceutical drugs,
MeCullough Hospital uses a job-order costing system to assign costs to its patents. Its direct materials include a vartety 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, utimes, incidental medical supplles, and the labor costs associated with around-the. clock montroring of patlents are treated as overhead costs Historically. Mccullough has used one predetermined overhead rate based on the number of patient-days (each night that a pattent spends in the hospral counts as one patient-day) to allocate overhead costs to patients. For the most recent period, this predetermined rate was based on three estimates-fixed overhead costs or $17,800,000, varlable overhead costs of $110 per patientday, and a denominator volume of 20.000 patlent-days. 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. Informatton pertaining to these two cost pools and two of the hospital's patlents - Patent A and Patient B-Is provided below' Required: 1Assuming Mccullough continues to use only one predetermined overhead rate, calculate: a. The predetermined ovecheed rate. b. The toral cost, including direct materials, direct labot, and opplied overhead, assigned to Patient A and Panent B : 2. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, caiculate: a. The ICU and Other overhead rates. b. The total cost, including direct materials, direct labor, and applied ovethead, assigned to Potient A and Patient B. (Round "Predetermined overhesd rate" to 2 decimal places. Round other intermediate calculetions and finat answers to the nearest doller smount.)
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