Problem 2-20 (Algo) 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 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. For the most recent period, this predetermined rate was based on three estimates-fixed overhead costs of $17,800,000, variable overhead costs of $110 per patient- day, and a denominator volume of 20,000 patient-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. Information pertaining to these two cost pools and two of the hospital's patients-Patient A and Patient B-is provided below: Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient-day Direct materials Direct labor Total number of patient-days (including ICU) Mumber of patient-days spent in ICU Total ICU 2,000 $ 3,260,000 5 236 Other 18,000 $ 14,540,000 $96 20,000 $ 17,800,000 Patient D $ 7,700 Patient A $ 6,000 $28,750 14 0 $ 39,000 21 7 predetermined rate was based on three estimates-fixed overhead costs of $17,800,000, variable overhead costs of $110 per patiem day, and a denominator volume of 20,000 patient-days. Recently a member of the hospital's accounting staff has suggested using two predetermined overhead rates (allocated based on th number of patient-days) to improve the accuracy of the costs allocated to patients. The first overhead rate would include all overhea costs within the Intensive Care Unit (ICU) and the second overhead rate would include all Other overhead costs. Information pertaini to these two cost pools and two of the hospital's patients-Patient A and Patient B-is provided below: Estimated number of patient-days Estimated fixed overhead cost Estimated variable overhead cost per patient-day Total ICU Other 2,000 $ 3,260,000 $236 18,000 $ 14,540,000 $ 96 20,000 $ 17,800,000 Direct materials Patient A $ 6,000 Patient B $ 7,700 Direct labor $ 28,750 $ 39,000 Total number of patient-days (including ICU) Number of patient-days spent in ICU 14 21 0 7 Required: 1.Assuming McCullough continues to use only one predetermined 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. (Round "Predetermined overhead rate" to 2 decimal places. Round other intermediate calculations and final answers to thei nearest dollar amount.) quired: ssuming McCullough continues to use only one predetermined overhead rate, calculate: The predetermined overhead rate. The total cost, including direct materials, direct labor, and applied overhead, assigned to Patient A and Patient B. Assuming McCullough calculates two overhead rates as recommended by the staff accountant, calculate: The ICU and Other overhead rates. The total cost, including direct materials, direct labor, and applied overhead, assigned to Patient A and Patient B. ound "Predetermined overhead rate" to 2 decimal places. Round other intermediate calculations and final answers to the arest dollar amount.) a. Predetermined overhead rate per patient-day b. Total cost for patient A 1b. Total cost for patient B 2a. Predetermined ICU overhead rate per patient-day 2a. Predetermined Other overhead rate i per patient-day 2b. Total cost for patient A 2b. Total cost for patient B