The administrator of Azalea Hills Hospital would like a cost formula linking th

Question

The administrator of Azalea Hills Hospital would like a cost formula linking th costs involved in admitting patients to the number of patients admitted during a month. The admitting department's costs and the number of patients admitted during the immediately preceding eight months are given in the following table;

A. Use the high low method to establish the fixed and variable components of admitting costs

B. Express the fixed and variable components of admitting costs as a cost formula in the linear equation for of Y =a +bX

Month Number of paitents Admitted Admitting department costs May 1800 $14,700.00 June 1900 $15,200.00 July 1700 $13,700.00 August 1600 $14,000.00 September 1500 $14,300.00 October 1300 $13,100.00 November 1100 $12,800.00 December 1500 $14,600.00

Explanation / Answer

A) 1100 patients = 12800

1900 patients = 15200

Variable cost for 800 patients = 15200 - 12800 = 2400

Hence variable cost = 2400/800 = 3

FIxed cost = 12800 - 1100 * 3 = 9500

B)

Y = 9500 + 3 * X

Where Y is the total Cost

9500 is the fixed cost

3 is the variable cost and

X is the number of patients admitted

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