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Direct Labor Costs and Overhead

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Mr. Robbins medical records indicated that a total of 20 labor hours were directly used in providing his care. The cost of the labor was $380. It was expected before the beginning of the year that a total of 90,000 direct labor hours would be consumed by the health care org. patients, at a cost of $1,350,000. The total overhead to be allocated to patients was expected to be $810,000. Determine the overhead to be assigned to Mr. Robbins based on the data given above. First, assign overhead on a basis of direct labor hours; and second, assign overhead on the basis of direct labor cost. Why might the result differ?

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Solution Summary

This solution calculates the overhead cost for a patient in a hospital and provides an explanation of why this cost might be different from the projected cost.

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Health Care Financial Problem
Mr. Robbins medical records indicated that a total of 20 labor hours were directly used in providing his care. The cost of the labor was $380. It was expected before the beginning of the year that a total of 90,000 direct labor hours would be consumed by the health care org. patients, at a cost of $1,350,000. ...

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