Princeton Chan, holding a bachelor's degree and a professional qualification in accounting, was recently employed as...

 

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Princeton Chan, holding a bachelor's degree and a professional qualification in accounting, was recently employed as a cost accountant in the Tanford Hospital which is renowned for its high success rate of removal of brain tumor surgery by one of the world's outstanding surgeons in this field. The hospital also provides operating room (surgery theatre) facilities and hospitalization to outside surgical specialists for different kinds of surgeries ranging from simple surgeries to complicated and plastic surgeries. Because of the unique nature of each kind of surgery, Princeton recommended the Tanford Hospital to use a job costing system for all patients who need surgery. Each patient concerned is treated by three departments, namely, Admission and General Care, Operating Room, and Hospitalization. Nursing hour is used as an allocation base for the allocation of nursing overhead costs. For normal costing purpose, Princeton estimated the following figures for the three departments: Operating Room Budgeted nursing overhead costs Admission & General Care $935,000 Budgeted nursing hours: 17,000 hours Budgeted no. of inpatient stay (days): Admission & General Care Medicine costs Direct nursing costs $669,600 $700 $2,100 9,300 hours Susan Lo, a beauty lover, recently received the Rhinoplasty surgery in the Tanford Hospital. Princeton had found out that the actual nursing hours incurred for this surgery were three and six hours respectively in the Admission & General Care and Operating Room department. Susan stayed in the hospital for four days in last week. Other costs related to this surgery were: Operating Room Hospitalization $6,412,500 $ 3,200 $10,700 2,850 patient days Hospitalization $8,600 $13,500 (a) Compute the budgeted overhead allocation rates for the Admission and General Care Department, Operating Room Department and Hospitalization Department. (3 marks) (b) Compute the total costs of the treatment of Susan Lo under the Normal Costing approach. (Note: Breakdown of each cost component is necessary, Sub-total and total of each component is also required) (11 marks) (c) Explain (i) why normal costing is preferred over actual costing in overhead allocation and (ii) briefly explain the ways that the difference between normal costing and actual costing is settled. (6 marks) Princeton Chan, holding a bachelor's degree and a professional qualification in accounting, was recently employed as a cost accountant in the Tanford Hospital which is renowned for its high success rate of removal of brain tumor surgery by one of the world's outstanding surgeons in this field. The hospital also provides operating room (surgery theatre) facilities and hospitalization to outside surgical specialists for different kinds of surgeries ranging from simple surgeries to complicated and plastic surgeries. Because of the unique nature of each kind of surgery, Princeton recommended the Tanford Hospital to use a job costing system for all patients who need surgery. Each patient concerned is treated by three departments, namely, Admission and General Care, Operating Room, and Hospitalization. Nursing hour is used as an allocation base for the allocation of nursing overhead costs. For normal costing purpose, Princeton estimated the following figures for the three departments: Operating Room Budgeted nursing overhead costs Admission & General Care $935,000 Budgeted nursing hours: 17,000 hours Budgeted no. of inpatient stay (days): Admission & General Care Medicine costs Direct nursing costs $669,600 $700 $2,100 9,300 hours Susan Lo, a beauty lover, recently received the Rhinoplasty surgery in the Tanford Hospital. Princeton had found out that the actual nursing hours incurred for this surgery were three and six hours respectively in the Admission & General Care and Operating Room department. Susan stayed in the hospital for four days in last week. Other costs related to this surgery were: Operating Room Hospitalization $6,412,500 $ 3,200 $10,700 2,850 patient days Hospitalization $8,600 $13,500 (a) Compute the budgeted overhead allocation rates for the Admission and General Care Department, Operating Room Department and Hospitalization Department. (3 marks) (b) Compute the total costs of the treatment of Susan Lo under the Normal Costing approach. (Note: Breakdown of each cost component is necessary, Sub-total and total of each component is also required) (11 marks) (c) Explain (i) why normal costing is preferred over actual costing in overhead allocation and (ii) briefly explain the ways that the difference between normal costing and actual costing is settled. (6 marks)