Problem 2-19 Service Company Use of Predetermined Overhead Rate

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Solution Guide / Answer Key:

ACCOUNTING

MT425 / MT 425
Managerial Finance and Accounting
Kaplan University (KU Campus)

James Jiambalvo
Managerial Accounting, 4e
Hoboken, NJ: John Wiley & Sons.

Unit 2: Accounting, Management, and Cost Decisions

Chapter 2, Problem 2-19 Service Company Use of Predetermined Overhead Rate [LO 6, 7, 9] Southwest Community Hospital uses a job-order costing system to track charges for each patient. The following charges relate to Candice O’Dea, who had laparoscopic knee surgery:
Pharmacy $ 250
Sterile supply 1,000
Supplies, other 4,000
Operating room service (nursing staff ) 4,000
Anesthesia 1,000
Anesthesiologist 3,000

Southwest charges patients for the use of the operating room based on a predetermined overhead rate. The estimated overhead costs of the operating room are $5,000,000, and the activity base is available hours of 2,000.

Required
a. Calculate the predetermined overhead rate for the operating room, and determine the charge to Candice. Assume that her surgery took 3 hours in the operating room.
b. Calculate the total cost for the knee surgery.

FILE: MS WORD