St. Mark\'s Hospital contains 450 beds. The average occupancy rate is 80% per mo

Question

St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In other words, on average, 80% of the hospital's beds are occupied by patients. At this level pf occupancy, the hospitals operating costs are $32 per occupied bed per day, assuming a 30-day month. This $32 figure contains both variable and fixed cost elements. During June, the hospitals occupancy rate was only 60%. A total of $326,700 in operating cost was incurred during the month.

1. Using the high-low method, estimate:

a. The variable cost per occupied bed on a daily basis.

b. The total fixed operating costs per month.

2. Assume an occupancy rate of 70% per month. What amount of total operating cost would you expect the hospital to incur?

Explanation / Answer

High 450 x 30 x 80%     10,800  10,800 x 32 = $345,600
Low   450 x 30 x 60%       8,100   8,100 x 32 = $326,700
Difference                       2,700                         $18,900

Variable cost per occupied bed on a daily basis = $18,900 / 2,700 = $7

b. The total fixed operating costs per month.
      345,600 - (10,800 x $7) = $270,000
    Alternatively,
     326,700 - (8,100 x $7) = $270,000

2. Assume an occupancy rate of 70% per month. What amount of total operating cost would you expect the hospital to incur?

Variable cost    450 x 30 x 70% x $7         $66,150
Fixed costs                                          $270,000
Total operating cost                          $336,150
                                                       ==========

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.