1. The facilities housekeeping department at St. Luke\'s Hospital has determined
ID: 326192 • Letter: 1
Question
1. The facilities housekeeping department at St. Luke's Hospital has determined that the appropriate cost driver for housekeeping costs is patient-days. There are 10,000 patient-days per month. The department has collected the following accounts for the past month:
Monthly Housekeeping Expenses Amount
Supervisors' Salaries Expense $10,000
Depreciation Expense—Scrubbing Machines $5,000
Cleaning Supplies Expense $7,000
Hourly Workers' Wages Expense $100,000
Insurance Expense—Scrubbing Machines $2,000
What’s the estimated cost function using the account analysis method?
Explanation / Answer
Let us first define account analysis method
Step 1: Separation of costs based on behaviour
Step 2: Determination of variable cost per unit
Step 3: Finalising the cost function
Cost Function is TC = VC + FC in the form of y = mx + c
where VC = variable cost and FC = Fixed cost
Hence variable costs are as follows:
1) Cleaning supplies expense: $7,000
2) Hourly Workers wages expense: $100,000
Total Variable costs = $7,000+ $100,000 = $107,000; Per patient-day = $107,000/10000 = $ 10.7
Fixed costs are as follows:
1) Supervisor's salaries expense = $10,000
2) Depreciation Expense = $5,000
3) Insurance expense = $2,000
Total fixed costs = $10,000 + $5000 + $2000 = $17,000
Cost Function = VC + FC
C F = 10.7x + 17000 (Answer)
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