1 من 1HW2-Week 4- Cost behavior and High-Low methodQ1. The administrator of Azalea Hills Hospital would like a cost formula linking the administrative costsinvolved in admitting patients to the number of patients admitted during a month. The admittingDepartment's costs and the number of patients admitted during the immediately preceding eightmonths are given in the following table:a. Use the high-low method to estimate the fixed and variable components of admitting costs.b. Express the fixed and variable components of admitting costs as a cost of formula in the form Y=a + bx.MonthMayJuneJulyAugustSeptemberOctoberNovemberDecemberNumber of PatientsAdmitted1,8001,9001,7001,6001,5001,3001,1001,500AdmittingDepartmentCosts$14,700$15,200$13,700$14,000$14,300$13,100$12,800$14,600

Introduction: - High-low method is one of the techniques that is used to separate fixed and…

Answered: a. Use the high-low method to estimate…

a. Use the high-low method to estimate the fixed and variable components of admitting costs. b. Express the fixed and variable components of admitting costs as a cost of formula in the form Y= a+bx.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter3: Cost Behavior And Cost Forecasting

Section: Chapter Questions

Problem 7MCQ

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In the cost formula, the term 12,000 a. is the variable rate. b. is the dependent variable. c. is the independent variable. d. is the intercept. e. cannot be determined from the above formula. Use the following information for Multiple-Choice Questions 3-4 through 3-7: The following cost formula was developed by using monthly data for a hospital. Total Cost = 128,000,000 + (12,000 Number of Patient Days)
2. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of patients being admitted and determine the cost formula. The following are the related data for the past five months that will be used determine such cost formula.Month | # of Patients Admitted |Admitting CostsJanuary 1,800 P 14,700February 1,900 P 15,200March 1,700 P 13,700April 1,600 P 14,000May 1,500 P 14,300The controller suggested to use the high-low method approach to derive for the cost formula. If the controller’s suggestion is to be followed:How much would be the total fixed costs?
4. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of patients being admitted and determine the cost formula. The following are the related data for the past five months that will be used determine such cost formula.Month |# of Patients Admitted |Admitting CostsJanuary 1,800 P 14,700February 1,900 P 15,200March 1,700 P 13,700April 1,600 P 14,000May 1,500 P 14,300The controller suggested to use the high-low method approach to derive for the cost formula. If the controller’s suggestion is to be followed:What would be the prediction formula/cost formula?
3. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of patients being admitted and determine the cost formula. The following are the related data for the past five months that will be used determine such cost formula.Month | # of Patients Admitted |Admitting Costs January 1,800 P 14,700 February 1,900 P 15,200 March 1,700 P 13,700 April 1,600 P 14,000 May 1,500 P 14,300 The controller suggested to use the high-low method approach to derive for the cost formula. If the controller’s suggestion is to be followed: How much would be the total costs if number of patients admitted is 1,750? 4. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of…
1. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of patients being admitted and determine the cost formula. The following are the related data for the past five months that will be used determine such cost formula. Month |# of Patients Admitted |Admitting Costs January 1,800 P 14,700 February 1,900 P 15,200 March 1,700 P 13,700 April 1,600 P 14,000 May 1,500 P 14,300 The controller suggested to use the high-low method approach to derive for the cost formula. If the controller’s suggestion is to be followed: How much would be the variable cost per unit? 2. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of patients…
5. The administrator of ABC Hospital would like to know the relationship between the costs of admitting in relation to the number of patients being admitted and determine the cost formula. The following are the related data for the past five months that will be used determine such cost formula. Month |# of Patients Admitted |Admitting Costs January 1,800 P 14,700 February 1,900 P 15,200 March 1,700 P 13,700 April 1,600 P 14,000 May 1,500 P 14,300 The controller suggested to use the high-low method approach to derive for the cost formula. If the controller’s suggestion is to be followed: How much would be the total admitting costs if no patient is admitted in June? 6. The following cost relate to XYZ Corp for the year: Sales commission expenses P 185,000 Direct materials…
Product costing and decision analysis for a service company Pleasant Stay Medical Inc. wishes to determine its product costs. Pleasant Stay offers a variety of medical procedures (operations) that are considered its products. The overhead has been separated into three major activities. The annual estimated activity costs and activity bases follow: Total patient days are determined by multiplying the number of patients by the average length of stay in the hospital. A weighted care unit (wcu) is a measure of nursing effort used to care for patients. There were 192,000 weighted care units estimated for the year. In addition, Pleasant Stay estimated 6,000 patients and 27,000 patient days for the year. (The average patient is expected to have a a little more than a four-day stay in the hospital.) During a portion of the year, Pleasant Stay collected patient information for three selected procedures, as follows: Private insurance reimburses the hospital for these activities at a fixed daily rate of 406 per patient day for all three procedures. Instructions Determine the activity rates. Determine the activity cost for each procedure. Determine the excess or deficiency of reimbursements to activity cost. Interpret your results.
Method of Least Squares, Predicting Cost for Different Time Periods from the One Used to Develop a Cost Formula Refer to the information for Farnsworth Company on the previous page. However, assume that Tracy has used the method of least squares on the receiving data and has gotten the following results: Required: 1. Using the results from the method of least squares, prepare a cost formula for the receiving activity. 2. Using the formula from Requirement 1, what is the predicted cost of receiving for a month in which 1,450 receiving orders are processed? (Note: Round your answer to the nearest dollar.) 3. Prepare a cost formula for the receiving activity for a quarter. Based on this formula, what is the predicted cost of receiving for a quarter in which 4,650 receiving orders are anticipated? Prepare a cost formula for the receiving activity for a year. Based on this formula, what is the predicted cost of receiving for a year in which 18,000 receiving orders are anticipated?
Weber Valley Regional Hospital has collected data on all of its activities for the past 16 months. Data for cardiac nursing care follow: Required: 1. Using the high-low method, calculate the variable rate per hour and the fixed cost for the nursing care activity. 2. Run a regression on the data, using hours of nursing care as the independent variable. Predict cost for the cardiac nursing care for September Year 2 if 1,400 hours of nursing care are forecast. Evaluate the regression equation. How comfortable are you with the predicted cost for September Year 2? 3. Upon looking into the events that happened at the end of Year 1, you find that the cardiology ward bought a cardiac-monitoring machine for the nursing station. Administrators also decided to add a new supervisory position for the evening shift. Monthly depreciation on the monitor and the salary of the new supervisor together total 10,000. Now, run two regression equations, one for the observations from Year 1 and the second using only the observations for the eight months in Year 2. Discuss your findings. What is your predicted cost of the cardiac nursing care activity for September Year 2?
Using Regression to Calculate Fixed Cost, Calculate the Variable Rate, Construct a Cost Formula, and Determine Budgeted Cost Refer to the information for Pizza Vesuvio on the previous page. Coefficients shown by a regression program for Pizza Vesuvios data are: Required: Use the results of regression to make the following calculations: 1. Calculate the fixed cost of labor and the variable rate per employee hour. 2. Construct the cost formula for total labor cost. 3. Calculate the budgeted cost for next month, assuming that 675 employee hours are budgeted. (Note: Round answers to the nearest dollar.) Use the following information for Brief Exercises 3-17 through 3-20: Pizza Vesuvio makes specialty pizzas. Data for the past 8 months were collected:
Scattergraph, High-Low Method, and Predicting Cost for a Different Time Period from the One Used to Develop a Cost Formula Refer to the information for Farnsworth Company on the previous page. Required: 1. Prepare a scattergraph based on the 10 months of data. Does the relationship appear to be linear? 2. Using the high-low method, prepare a cost formula for the receiving activity. Using this formula, what is the predicted cost of receiving for a month in which 1,450 receiving orders are processed? 3. Prepare a cost formula for the receiving activity for a quarter. Based on this formula, what is the predicted cost of receiving for a quarter in which 4,650 receiving orders are anticipated? Prepare a cost formula for the receiving activity for a year. Based on this formula, what is the predicted cost of receiving for a year in which 18,000 receiving orders are anticipated? Use the following information for Problems 3-60 and 3-61: Farnsworth Company has gathered data on its overhead activities and associated costs for the past 10 months. Tracy Heppler, a member of the controllers department, has convinced management that overhead costs can be better estimated and controlled if the fixed and variable components of each overhead activity are known. One such activity is receiving raw materials (unloading incoming goods, counting goods, and inspecting goods), which she believes is driven by the number of receiving orders. Ten months of data have been gathered for the receiving activity and are as follows:
High-Low Method Refer to the information for Luisa Crimini above. Required: 1. Which month represents the high point? The low point? 2. Using the high-low method, compute the variable rate for tanning. Compute the fixed cost per month. 3. Using your answers to Requirement 2, write the cost formula for tanning services. 4. Calculate the total predicted cost of tanning services for September for 2,500 appointments using the formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? 5. CONCEPTUAL CONNECTION Identify and briefly explain any additional issues that Luisa might be wise to consider when using the high-low method to estimate the costs of her tanning salon.