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A patient stay absorbs $70 of admissions, $3,600 of operating room, $450 of medications, $580 of radiology, $900 of diagnostic lab, $720 of medical assistance, $480 of cleaning and $100 of discharge cost. What overhead is applied to the stay?
A$5,800
B$6,300
C$6,900
D$7,200
Answer & Solution
Correct answer: C. $6,900
1. A service business applies overhead by summing the cost of every activity the customer consumed.
2. Adding in order: $70, then $3,670, then $4,120, then $4,700.
3. Continuing: $5,600, then $6,320, then $6,800, then $6,900.
4. Total overhead applied to the stay is $6,900.
5. Dropping the small admissions and discharge charges is what produces a figure near $6,300.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.7 Activity-Based Costing for a Service Business to Estimate Factory Overhead_
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