Question

Falls Creek Community Health Clinic uses the high-low method to analyze cost behavior and has determined that number of patients treated predict the clinic's total treatment costs. Determine the cost function (formula) for total treatment costs. What will the estimated treatment cost be if Falls Creek Community Health Clinic treats 1706 patients in a month? Total Treatment of Costs Patients Number January $3,450 1020 February $3,720 1110 March $3,467 1010 April$3,730 1270 May $4,900 1320 June $4,232 1460 Round your final answer to two decimal places)

Answer 1

Here, the high level of activity was in the month of June when they treated 1460 patients and the low level of activity was in the month of March when they treated 1010 patients

	Total treatment cost	Number of patients
High level of activity	$4,232	1460
Less : Low level of activity	( $3,467 )	( 1010 )
Difference	$765	450

Variable cost per patient = Difference in total treatment cost / difference in number of patients = $765 / 450 patients = $1.7 per patient.

Now let us calculate fixed cost from the data of June month

Total treatment cost = Total variable cost + Total fixed cost

$4,232 = ( 1460 patients * $1.7 per patient ) + Total fixed cost

$4,232 = $2,482 + Total fixed cost

Total fixed cost = $1,750

Cost function, y = a + bx

where, y = total treatment cost, a = total fixed cost, b = variable cost per patient, x = number of patients

So, here the cost function will be, y = $1,750 + ( $1.7 * x )

Let us now calculate estimated total treatment cost when 1706 patients are treated in a month

y = $1,750 + ( $1.7 * 1706 patients )

y = $4,650.2

So, the estimated total treatment cost of treating 1706 patients in a month is $4,650.2

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