28704-14-14.

16E AID: 1825 | 28/05/2018

<SUB-PART>

1.

<TO DETERMINE>

To determine: The overhead rate changed by Sierra university hospital changed on the
cotton roll.

Given,
Invoiced cost of cotton rolls as $ 2.40
Cost of processing of paperwork for purchase as 0.60
Supplies-room management fee as 0.70
Operating-room and patient-room handling costs as 1.60
Administrative hospital costs as 1.10
University teaching-related costs as 0.60
Malpractice insurance costs as 1.20
Cost of treating uninsured patients as 2.72
Profit component as 0.60

</TO DETERMINE>

<ANSWER>

The overhead rate is 380%.

</ANSWER>

<EXPLANATION>

Solution:

Overhead rate: It is the rate which is charged on per unit overhead utilized. Overhead
basically means the cost used on the product.

Formula to calculate the overhead rate is:

Total cost-Direct cost

Overhead rate= ×100
Direct Cost

Substitute Indirect cost as $11.52, direct cost as $2.40

Total cost-Direct cost

Overhead rate= ×100
Direct Cost
$11.52 - $2.40
Overhead rate= ×100
$2.40
Overhead rate=380%

</EXPLANATION>

<CONCLUSION>

Conclusion:

Hence, the overhead rate is 380%.

</CONCLUSION>

</SUB-PART>

<SUB-PART>

2.

<TO DETERMINE>

To determine: The criteria to justify the allocation of overhead.

</TO DETERMINE>

<EXPLANATION>

Solution:

The allocation of the overhead can be detailed as follows:

Overhead Cost Item Allocation Criteria

Cost of Processing of paperwork for purchase Cause and effect

Supplies room management fee Benefits received

Operating-room and patient-room handling Cause and effect

costs

Administrative hospital costs Benefits received

University teaching-related costs Ability to bear

Malpractice insurance costs Ability to bear or benefits received

Cost of treating uninsured patients Ability to bear

Profit component None. This is not a cost.

</EXPLANATION>

</SUB-PART>

<SUB-PART>

3.

<TO DETERMINE>

To determine: the action which Meltzer should take for the cotton roll

</TO DETERMINE>

<EXPLANATION>

Solution:

 Accepting that M’s insurance agency is in charge of paying the $4,800 charge,
Meltzer most likely can just express shock at the measure of the bill.
 The purpose of this inquiry is to take note of that regardless of whether Meltzer
questions emphatically to at least one overhead things, it is his insurance agency
that presumable has the more noteworthy motivating force to challenge the bill.
 Singular patients have next to no power in the medicinal field. Interestingly,
insurance agencies have impressive power and may choose that specific expenses
are not reimbursable– – for instance, the expenses of treating uninsured patients.

</EXPLANATION>

</SUB-PART>