Question
In: Accounting
The number of blood tests performed and the related costs over the last nine months in...
The number of blood tests performed and the related costs over the last nine months in Brentline Hospital are given below:
| Month | Blood Tests Performed |
Blood Test Costs |
||
| January | 5,120 | $ | 67,900 | |
| February | 5,400 | $ | 70,530 | |
| March | 4,695 | $ | 61,932 | |
| April | 4,290 | $ | 56,782 | |
| May | 4,425 | $ | 59,041 | |
| June | 3,600 | $ | 48,570 | |
| July | 4,020 | $ | 53,212 | |
| August | 5,315 | $ | 69,419 | |
| September | 5,245 | $ | 69,025 | |
Required:
1. Using the high–low method, estimate the cost formula for blood tests. (Round cost per unit answer to 2 decimal places.)
2. Using the cost formula you derived above, what blood test costs would you expect to be incurred during a month in which 4,410 blood tests are performed? (Round your intermediate calculations answer to 2 decimal places.)
Solutions
Expert Solution
| Solution: 1 | ||||||
| CALCULATION OF VARIABLE COST PER UNIT AND FIXED COST PER UNIT | ||||||
| Variable Cost per unit = High Level Total Cost - Low Level Total Cost / Change in Units Produced | ||||||
| High level month = | February | |||||
| Low Level Month = | June | |||||
| Change in Blood Test Cost = | February Cost | - | June Cost | = | Difference | |
| Change in Blood Test Cost = | $ 70,530 | - | $ 48,570 | = | $ 21,960 | |
| Divide By | "/" By | |||||
| Change in Blood Test Performed = | 5,400 | - | 3,600 | = | 1,800 | |
| = | ||||||
| Equals to Variable Cost Per unit | = | $ 12.20 | ||||
| Calculation of Fxed Cost | ||||||
| For the month of February | 70530 | |||||
| Fixed Cost = | Total Cost | "-" | Variable Cost | |||
| Fixed Cost = | $ 70,530 | "-" | $ 65,880.00 | |||
| (5,400 X $ 12.20) | ||||||
| Fixed Cost = | $ 4,650 | |||||
| Answer = | ||||||
| Variable Cost Per Blood Test = $ 12.20 | ||||||
| Fixed Cost Element = 4,650 | ||||||
| Y = a + bx | ||||||
| A =Fixed Cost = | $ 4,650 | |||||
| bx = Variable Cost Per Unit X No. of Blood Test Performed | $ 12.20 X Blood Test Performed | |||||
| Solution: 2 | ||||||
| Calcuation of Total cost for 4,410 blood test Performed | ||||||
| Variable Cost = 4,410 X $ 12.20 | $ 53,802 | |||||
| Add: Fixed Cost | $ 4,650 | |||||
| Total Cost | $ 58,452 | |||||
| Answer = Total Cost = $ 58,452 | ||||||
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