Question

Homework – Problem #1

High-Low, Scattergraph, Regression Analysis, and P & L Statement: Eye Care, Inc., provides vision correction surgery for its patients. You are the accountant for Eye Care, and management has asked you to devise a way of accurately estimating company costs for planning and decision-making purposes. You believe that reviewing historical data for costs and number of surgeries is the best starting point. These data are as follows:

Reporting Period (Month)	Total Costs	Number of Surgeries
January	202,000	50
February	204,000	52
March	207,000	53
April	201,000	54
May	230,000	62
June	233,000	64
July	222,000	56
August	235,000	54
September	241,000	70
October	243,000	73
November	242,000	53
December	240,000	59

Required:

1. Use the four steps of the high-low method to estimate total fixed costs per month, and the variable cost per surgery. State your results in the cost equation form Y = f + vX by filling in the dollar amounts for f and v. Explain.
2. Use the five steps of the scattergraph method to estimate total fixed costs per month, and the variable cost per surgery. State your results in the cost equation form Y = f + vX by filling in the dollar amounts for f and v. Explain.
3. Use the regression output given to develop the cost equation Y = f + vX by filling in the dollar amounts for f and v. Explain.
4. Use the results of the high-low method (a), scattergraph method (b), and regression analysis (c), to estimate costs for 70 surgeries. (You will have three different answers—one for each metho) Which approach do you think is most cost efficient and why? Explain.
5. Assume Eye Care charges $4,000 for each surgery performed. Use the regression analysis cost information (for 70 surgeries) to prepare a P & L statement. Explain the results.

Answer 1