Question

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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	4,625	$	81,516
February	7,750	$	119,450
March	4,125	$	74,504
April	3,680	$	68,748
May	3,915	$	72,178
June	3,000	$	60,550
July	3,455	$	65,688
August	4,725	$	81,704
September	4,785	$	83,164

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 4,270 blood tests are performed? (Round your intermediate calculations answer to 2 decimal places.)

Answer 1

Requirement 1

Y=

$          23,350.00

+

$                12.40

X

Fixed cost =23500 and variable cost = 12.40 per unit

Requirement 2

Total cost for 4270 blood tests=$81,878.00

Working

		Cost	No. of activities
A	High Level	$        119,450.00	7750
B	Low Level	$          60,550.00	3000
C=A-B	Difference	$          58,900.00	$              4,750.00
A	Cost difference	$          58,900.00
B	No. of activities difference	4750
C=A/B	Variable cost per unit	$ 12.40
		High Level	Low Level
A	No. of activities	7750	3000
B	Variable cost per unit	$              12.4000	$               12.4000
C=AxB	Total Variable cost	$          96,100.00	$            37,200.00
D	Total cost	$        119,450.00	$            60,550.00
E=D-C	Total fixed cost	$          23,350.00	$            23,350.00