The number of blood tests performed and the related costs over the last nine mon
ID: 2470860 • Letter: T
Question
The number of blood tests performed and the related costs over the last nine months in Brentline Hospital are given below:
Month
Blood Tests Performed
Blood Test Costs
January
3125
$ 14,000.00
February
3500
$ 14,500.00
March
2500
$ 11,500.00
April
2125
$ 10,000.00
May
2250
$ 11,000.00
June
1500
$ 8,500.00
July
1875
$ 9,000.00
August
2750
$ 12,000.00
September
2875
$ 13,000.00
Using the high-low method, estimate the cost formula for blood tests.
Using the cost formula you derived above, what blood tests costs would you expect to be incurred during a month in which 2300 blood tests are performed?
Month
Blood Tests Performed
Blood Test Costs
January
3125
$ 14,000.00
February
3500
$ 14,500.00
March
2500
$ 11,500.00
April
2125
$ 10,000.00
May
2250
$ 11,000.00
June
1500
$ 8,500.00
July
1875
$ 9,000.00
August
2750
$ 12,000.00
September
2875
$ 13,000.00
Explanation / Answer
Answer 1 High low method is one of the technique used to split the mixed cost into its fixed and variable component. Cost formula is y = a + bx b = Variable cost per unit = (y2 - y1) / (x2-x1) y2 is the total cost at highest level of activity = $14500 y1 is the total cost at lowest level of activity = $8500 x2 are the number of blood test performed at highest level of activity = 3500 x1 are the number of blood test performed at lowest level of activity = 1500 b = Variable cost per unit = (14500 - 8500) / (3500-1500) = $3 per blood test a = Fixed cost = y2 - bx2 = $14500 - ($3 *3500) = $4000 a = Fixed cost = y1 - bx1 = $8500 - ($3 *1500) = $4000 Answer 2 Calculation of blood cost when 2300 blood test are performed Cost = Variable cost + Fixed cost = ($3 *2300) + $4000 = $10900
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