Question

The number of X-rays and X-ray costs over the last nine months in
Beverly Hospital are given below:

Month              X-Ray Costs             X-Rays Taken
January             $28,000                   6,250
February             29,000                   7,000
March                23,000                   5,000
April                18,000                   3,750
May                  21,000                   4,500
June                 24,000                   5,500
July                 20,000                   4,250
August               16,000                   3,000
September            25,000                   5,750

Beverly Hospital expects to take 4,900 X-rays during October.

Using the high-low method, calculate Beverly Hospital's
expected X-ray cost for October.

Answer 1

	X-Ray cost	No. of X-Ray taken
High activity level	$29,000	7,000
Low activity level	$16,000	3,000

Unit variable cost can be computed using High-Low method as:

Unit Variable cost = (Cost in highest level – cost in lowest level)/No. of units in highest level - No. of units in lowest level

= ($ 29,000 - $ 16,000)/ (7,000- 3,000)

= $ 13,000/4,000 = $ 3.25

Fixed cost can be computed by substituting variable cost in any activity level as:

Total cost = Fixed cost + Variable cost

$ 29,000 = Fixed cost + $ 3.25 x 7,000

$ 29,000 = Fixed cost + $ 22,750

Fixed cost = $ 29,000 - $ 22,750

Fixed cost = $ 6,250

Cost for level of 4,900 units = Fixed cost + Variable cost

                                            = $ 6,250 + 4,900 x 3.25 = $ 6,250 + $ 15,925 = $ 22,175

Bererly Hospitals expected X-ray cost for October is $ 22,175