Joyce Jones is the Chief Operating Officer at Empire Hospital in Missoula, Monta
ID: 2427340 • Letter: J
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.
Variable cost Fixed cost Mixed cost Hospital Overhead Costs
2. Using the High-Low Method and nursing hours as a driver of overhead, what is the variable cost per unit?
3. 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?
4. Estimate total hospital overhead costs if Empire Hospital incurs 25,000 of nursing hours in January using the information from the High-Low Method gathered in Questions #2 and #3.
5. Estimate total hospital overhead costs if Empire Hospital uses patient days as a driver and the High-Low method and assuming the hospital incurs 4,600 of patient days in January
Month Hospital Overhead Costs Nursing Hours Number of Patient Days Overhead Cost per Nursing Hour Overhead Cost per Patient Day July $476,000 24,000 3,720 $19.83 $127.96 August $512,000 26,000 4,320 $19.69 $118.52 September $424,000 20,000 4,220 $21.20 $100.47 October $448,000 22,500 3,470 $19.91 $129.11 November $555,000 30,000 5,690 $18.50 $97.54 December $431,000 22,000 3,210 $19.59 $134.27Explanation / Answer
1./
THE HOSPITAL OVERHEAD COST IS MIXED I;E SOME PART OF THE OVERHEAD COST IS VARIABLE AND OTHER IS FIXED.
2./
VARIABLE COST PER UNIT = CHANGE IN OVERHEAD COST / CHANGE IN NURSING HOUR
= ($512000 - $476000) / (26000 - 24000)
= $18 PER NURSE HOUR
3./
LETS TAKE JULY MONTH DATA FOR CALCULATION OF FIXED COST
TOTAL OVERHEAD COST = $476000
VARIABLE OVERHEAD (24000 HOUR * $18) = $432000
FIXED COST ($476000 - $432000) = $44000
4./
TOTAL COST FOR JANUARY WHEN INCURRS 25000 NURSING HOUR
VARIABLE COST OF OVERHEAD (25000 * $18) = $450000
FIXED OVERHEAD COST = $44000
TOTAL OVERHEAD = $494000
5./
BY TAKEING PATIENT DAYS AS A DRIVER
VARIABLE COST PER UNIT = CHANGE IN OVERHEAD COST / CHANGE IN PATIENT DAYS
= ($512000 - $476000) / (4320 - 3720)
= $60 PER PATIENT DAYS
LETS TAKE JULY MONTH DATA FOR CALCULATION OF FIXED COST
TOTAL OVERHEAD COST = $476000
VARIABLE OVERHEAD (3720 HOUR * $60) = $223200
FIXED COST ($476000 - $223200) = $252800
TOTAL COST FOR JANUARY WHEN INCURRS 4600 PATIENT DAYS
VARIABLE COST OF OVERHEAD (4600 * $60) = $276000
FIXED OVERHEAD COST = $252800
TOTAL OVERHEAD = $528800
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.