Question

Multi Part Question. Please explain your answer

The data below have been taken from the cost records of the Halifax General Hospital. The data relate to the costs of admitting patients at various levels of patient activity: Month May June July August September October November December Number of Patients Admitted 3,600 3,800 2,900 3,200 3,300 2,600 2,200 3,500 Admitting Department Costs $ 29,400 $ 30,400 $ 27,400 $ 28,000 $ 28,600 $ 26, 200 $ 25,600 $ 29,200 Required: 1. Using the high-low method, estimate the fixed cost of admitting patients per month and the variable cost of admissions per patient. Fixed cost element per month Variable cost element per patient

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Answer 1

As per High Low Method, Variable cost per unit = (HC-LC)/(HNOP - LNOP) Where, HC is Highest Admitting Cost per month LC is Lowest Admitting Cost per month HNOP is Highest Number of Patients LNOP is Lowest Number of Patients Here, HC = $ 30,400 LC = $ 25,600 HNOP = 3,800 LNOP = 2,200 Hence, Variable cost per Patient = ($ 30,400 - $ 25,600) / (3,800 - 2,200) Variable cost per Patient = $ 4,800 / 1,600 Variable cost per Patient = $ 3 Fixed Cost Per month = HC - HVC Where, HVC is Variable cost of the month of HC So, HVC = HNOP * Variable Cost Per Patient HVC = 3,800 * 3 HVC = $ 11,400 Fixed cost element $ 19,000 Per Month Variable cost element $ 3 Per Patient Hence, Fixed Cost Per month = HC - HVC Fixed Cost Per month = $ 30,400 - $ 11,400 Fixed Cost Per month = $ 19,000

$16,000 $14,000 Month January February March April May June July August September Blood Test Blood Test Performed Costs 3,125 $ 14,000 3,500 $ 14,500 2.500 $ 11,500 2,125 $ 10,000 2.250 $ 11,000 1,500 $ 8,500 1,550 $ 8,400 2.750 $ 12,000 2,875 $ 13,000 $12,000 $10,000 Blood Test Costs $8,000 $6,000 $4,000 $2,000 S- 1,000 2,000 3,000 4,000 Blood Test Performed