Elmbrook Hospital uses a job-order costing system for all patients who have surgery.The following information is available:
$\begin{array} { l }
\text { Budgeted indirect costs-pre-operating room}&\$84,000 \
\text {udgeted indirect costs-operating room}&\$ 66,000\
\text {Budgeted indirect costs-surgery recovery floor }&\$ 600,000\
\text { Budgeted nursing hours-pre-operating roo}&4,000 \
\text {Budgeted nursing hours-operating room }&1,000 \
\text {Budgeted nursing hours - sur gery recovery floor }&7,500 \
\end{array}$

The cost driver for all indirect costs is nursing hours.The hospital uses a budgeted rate for indirect costs.A patient spent 8 hours in the pre-operating room,4 hours in the operating room and 96 hours on the surgery recovery floor.What amount of indirect costs will be applied to this patient?

Question

Elmbrook Hospital uses a job-order costing system for all patients who have surgery.The following information is available:
$\begin{array} { l  }
 \text { Budgeted indirect costs-pre-operating room}&\$84,000 \
 \text {udgeted indirect costs-operating room}&\$ 66,000\
 \text {Budgeted indirect costs-surgery recovery floor }&\$ 600,000\
 \text { Budgeted nursing hours-pre-operating roo}&4,000 \
 \text {Budgeted nursing hours-operating room }&1,000 \
 \text {Budgeted nursing hours - sur gery recovery floor }&7,500 \
\end{array}$

The cost driver for all indirect costs is nursing hours.The hospital uses a budgeted rate for indirect costs.A patient spent 8 hours in the pre-operating room,4 hours in the operating room and 96 hours on the surgery recovery floor.What amount of indirect costs will be applied to this patient?

Quizplus · Accepted Answer

To calculate the amount of indirect costs applied to the patient, first determine the budgeted indirect cost rate for each area by dividing the budgeted indirect costs by the budgeted nursing hours. Then, multiply these rates by the actual hours the patient spent in each area.Pre-operating room rate: $84,000 / 4,000 hours = $21 per hourOperating room rate: $66,000 / 1,000 hours = $66 per hourSurgery recovery floor rate: $600,000 / 7,500 hours = $80 per hourNow, calculate the indirect costs for each area based on the hours the patient spent:Pre-operating room: 8 hours * $21 = $168Operating room: 4 hours * $66 = $264Surgery recovery floor: 96 hours * $80 = $7,680Total indirect costs = $168 + $264 + $7,680 = $8,112

Elmbrook Hospital Uses a Job-Order Costing System for All Patients