Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 43

Predetermined factory overhead rate
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:

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.
a. Determine the predetermined operating room overhead rate for the year.
b. Bill Harris had a five-hour procedure on January 22. How much operating room overhead would be charged to his procedure, using the rate determined in part (a)
c. During January, the operating room was used 240 hours. The actual overhead costs incurred for January were $67,250. Determine the overhead under- or overapplied for the period.