Question

Poehling Medical Center has a single operating room that is used by local physicians to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and includes the direct materials costs (drugs and medical devices), physician surgical time, and operating room overhead. On January 1 of the current year, the annual operating room overhead is estimated to be:

Line Item Description Amount
Disposable supplies $402,900
Depreciation expense 100,900
Utilities 43,000
Nurse salaries 374,600
Technician wages 170,600
Total operating room overhead $1,092,000
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.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

a. Determine the predetermined operating room overhead rate for the year.
fill in the blank 1 of 3$
per hour

b. Ebony Jones had a five-hour procedure on January 22. How much operating room overhead would be charged to her procedure, using the rate determined in part (a)?
fill in the blank 2 of 3$

c. During January, the operating room was used 230 hours. The actual overhead costs incurred for January were $86,700. Determine the overhead under- or overapplied for the period. Enter your answer as a positive number.
fill in the blank 3 of 3$

Answer 1

To answer the questions, we'll first calculate the predetermined operating room overhead rate based on the provided information.

### Step-by-Step Calculation

**Total Operating Room Overhead**:
- Total operating room overhead = $1,092,000

**Operating Room Usage**:
Operating room runs 8 hours per day for 365 days, but will be shut down for 2 weeks for repairs.
- Total operational days = 365 - 14 (days shut down) = 351 days
- Total hours of use = 351 days * 8 hours/day = 2,808 hours

**Predetermined Operating Room Overhead Rate**:
To find the predetermined overhead rate:
\[
\text{Predetermined overhead rate} = \frac{\text{Total operating room overhead}}{\text{Total hours of use}} = \frac{1,092,000}{2,808}
\]

Now let's perform the calculation:
\[
\text{Predetermined overhead rate} = \frac{1,092,000}{2,808} \approx 389.72\,
\]

### a. Answer:
**Predetermined operating room overhead rate: $389.72 per hour.**

### b. Overhead Charged to Ebony Jones' Procedure:
Ebony Jones had a 5-hour procedure. Thus, the operating room overhead charged to her procedure is calculated as:
\[
\text{Overhead for the procedure} = \text{Predetermined overhead rate} \times \text{Hours for the procedure}
= 389.72 \times 5
\]
Calculating gives:
\[
\text{Overhead for the procedure} \approx 1948.60\,
\]

### b. Answer:
**Operating room overhead charged to Ebony Jones' procedure: $1,948.60.**

### c. Determine the Overhead Under- or Overapplied:
During January, the operating room was used for 230 hours. Using the predetermined overhead rate, the applied overhead for January is:
\[
\text{Applied overhead} = \text{Predetermined overhead rate} \times \text{Hours used}
= 389.72 \times 230
\]
Calculating gives:
\[
\text{Applied overhead} \approx 89638.60\,
\]

The actual overhead costs incurred for January were $86,700.

To determine the under- or overapplied overhead:
\[
\text{Under- or overapplied overhead} = |\text{Actual overhead} - \text{Applied overhead}|
= |86700 - 89638.60|
= 2938.60\,
\]

### c. Answer:
**Overhead under- or overapplied for the period: $2,938.60.**

### Summary of Answers:
1. a. $389.72 per hour
2. b. $1,948.60
3. c. $2,938.60