Joyce Jones is the Chief Operating Officer at Empire Hospital in Missoula, Monta

Question

Joyce Jones is the Chief Operating Officer at Empire Hospital in Missoula, Montana. She is analyzing the hospital's overhead costs but is not sure whether nursing hours or the number of patient days would be the best cost driver to use for predicting the hospital's overhead. She has gathered the following information for the last six months of the most recent year: Are hospital overhead costs fixed, variable, or mixed. Use the data in the table in arriving at your conclusion. Using the High-Low Method and nursing hours as a driver of overhead, what is the variable cost per unit? Using the High-Low Method (again, with nursing hours as a driver of overhead), what is the fixed cost component of the cost function for hospital overhead? Estimate total hospital overhead costs if Empire Hospital incurs 30,000 of nursing hours in January using the information from the High-Low Method gathered in Questions #2 and #3. Estimate total hospital overhead costs if Empire Hospital uses patient days as a driver and the High-Low method and assuming the hospital incurs 3,900 of patient days in January.

Explanation / Answer

mixed Highlow method Variable Cost per Unit =(y2 y1)/ (x2 x1) Where, y2 is the total cost at highest level of activity; y1 is the total cost at lowest level of activity; x2 are the number of units/labor hours etc. at highest level of activity; and x1 are the number of units/labor hours etc. at lowest level of activity (555000-424000)/(30000-20000) 13.1 Total fixed cost = (555000-13.1*30000) 162000 Total cost for 30000 hours is (30000*13.1+162000) 555000 Patient day (555000-431000)/(5690-3210) 50

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