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Two-Stage Allocation and Product Costing
Owl-Eye Radiologists (OR) does various types of diagnostic imaging. Radiologists perform tests using sophisticated equipment. OR's management wants to compute the costs of performing tests for two different types of patients: those who are hospitalized (including those in emergency rooms) and those who are not hospitalized but are referred by physicians. The data for June for the two categories of patients follow.
Hospital Patients Other Patients
Total
Units (i.e., procedures) produced . .
640
860
1,500
Equipment-hours used
240
120
360
Direct labor-hours
480
180
660
Direct labor costs
$38,400
$10,800
$49,200
Overhead costs
$49,560
The accountant first assigns overhead costs to two pools: overhead related to equipment-hours and overhead related to labor-hours. The analysis of overhead accounts by the cost accountant follows:
Account
Amount
Related to:
Utilities
$ 4,800
Equipment-hours
Supplies
12,600
Labor-hours
Indirect labor and supervision
20,400
Equipment depreciation and maintenance .
8,400
Miscellaneous
3,360
Required
a. Compute the predetermined overhead rates assuming that Owl-Eye Radiologists uses equipment-hours to allocate equipment-related overhead costs and labor-hours to allocate labor-related overhead costs.
b. Compute the total costs of production and the cost per unit for each of the two types of patients undergoing tests in June.
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