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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 per- forming 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 (procedures) produced 640 860 1,500

Equipment-hours used 240 120 360

Direct labor hours 480 180 660

Direct labor cost $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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4800 Equipment-hours

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,600 Labor hours

Indirect labor and supervision . . . . . . . . . . 20,400 labor hours

Equipment depreciation and maintenance. 8,400 Equipment hours

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 3,360 Equipment hours

required:

1. 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.
2. 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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