Cornerstones of Cost Management (Cornerstones Series)
3rd Edition
ISBN: 9781285751788
Author: Don R. Hansen, Maryanne M. Mowen
Publisher: Cengage Learning
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Chapter 3, Problem 37P
1.
To determine
Calculate the variable rate per hour and the fixed cost for the nursing care activity using high to low method.
2.
To determine
Predict the cost for nursing care activity for September 2014, if 1,400 hours of nursing care are
3.
To determine
Run a regression equation for first year, and second year, and discuss the findings, and predict the cost of the cardiac nursing care activity for September 2014.
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To estimate the monthly maintenance cost for the maintenance department in a hospital, the following monthly costs are
available:
Monthly Expense
Supervisor Salary Expense
Depreciation Expense-Maintenance Equipment
Repairs Expense-Maintenance Equipment
Supplies Expense
Wages Expense-Maintenance Workers
$10,000
The Supervisor Salary Expense and the Depreciation Expense are fixed costs. The remaining expenses are variable costs. There are
1,000 patient days in a month, which is the cost driver for maintenance costs. Estimate the cost function where Y is the monthly
maintenance cost and X is the variable cost per patient day.
OY-58+$22X
OY $30,000 $22.000x
OY-$8,000-$22,000x
OY-$8,000 $22X
$5,000
Costs
$3,000
$5,000
$7,000
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 fixedcost 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 thetotal fixed cost for September? How much is the total predicted variable cost forSeptember?5. CONCEPTUAL CONNECTION Identify and briefly explain any additional issues thatLuisa might be wise to consider when using the high-low method to estimate the costs ofher tanning salon.
Falls Creek Community Health Clinic uses the high-low method to analyze cost behavior and has determined that
number of patients treated predict the clinic's total treatment costs. Determine the cost function (formula) for
total treatment costs. What will the estimated treatment cost be if Falls Creek treats 1,402 patients in a month?
Total
Number
Treatment of
Patients
Costs
January $3,410
February $3,790
$3,574
$3,730
$4,500
1060
1180
March
1030
April
1260
May
1310
$4,294
June
1430
(Round your final answer to two decimal places)
Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
Ch. 3 - Why is knowledge of cost behavior important for...Ch. 3 - How does the length of the time horizon affect the...Ch. 3 - Prob. 3DQCh. 3 - What is the relationship between flexible...Ch. 3 - What is the relationship between committed...Ch. 3 - Describe the difference between a variable cost...Ch. 3 - Why do mixed costs pose a problem when it comes to...Ch. 3 - Why is a scattergraph a good first step in...Ch. 3 - What are the advantages of the scatterplot method...Ch. 3 - Prob. 10DQ
Ch. 3 - What is meant by the best-fitting line? Is the...Ch. 3 - When is multiple regression required to explain...Ch. 3 - Explain the meaning of the learning curve. How do...Ch. 3 - Assume you are the manager responsible for...Ch. 3 - Some firms assign mixed costs to either the fixed...Ch. 3 - Callies Gym is a complete fitness center. Owner...Ch. 3 - Corazon Manufacturing Company has a purchasing...Ch. 3 - Darnell Poston, owner of Poston Manufacturing,...Ch. 3 - Dohini Manufacturing Company had the following 12...Ch. 3 - Refer to Cornerstone Exercise 3.4 for data on...Ch. 3 - Prob. 6CECh. 3 - The controller for Dohini Manufacturing Company...Ch. 3 - Prob. 8CECh. 3 - Classify the following costs of activity inputs as...Ch. 3 - SmokeCity, Inc., manufactures barbeque smokers....Ch. 3 - Cashion Company produces chemical mixtures for...Ch. 3 - For the following activities and their associated...Ch. 3 - Prob. 13ECh. 3 - Vargas, Inc., produces industrial machinery....Ch. 3 - Penny Davis runs the Shear Beauty Salon near a...Ch. 3 - Shirrell Blackthorn is the accountant for several...Ch. 3 - Deepa Dalal opened a free-standing radiology...Ch. 3 - Prob. 18ECh. 3 - The controller of the South Charleston plant of...Ch. 3 - Lassiter Company used the method of least squares...Ch. 3 - Sweet Dreams Bakery was started five years ago by...Ch. 3 - Prob. 22ECh. 3 - Bordner Company manufactures HVAC (heating,...Ch. 3 - Sharon Glessing, controller for Janson Company,...Ch. 3 - The graphs below represent cost behavior patterns...Ch. 3 - Starling Co. manufactures one product with a...Ch. 3 - Prob. 27ECh. 3 - Prob. 28ECh. 3 - Prob. 29ECh. 3 - Prob. 30ECh. 3 - Rolertyme Company manufactures roller skates. With...Ch. 3 - St. Teresas Medical Center (STMC) offers a number...Ch. 3 - Big Mikes, a large hardware store, has gathered...Ch. 3 - Kimball Company has developed the following cost...Ch. 3 - The management of Wheeler Company has decided to...Ch. 3 - DeMarco Company is developing a cost formula for...Ch. 3 - Prob. 37PCh. 3 - Friendly Bank is attempting to determine the cost...Ch. 3 - Randy Harris, controller, has been given the...Ch. 3 - Prob. 40PCh. 3 - Harriman Industries manufactures engines for the...Ch. 3 - Thames Assurance Company sells a variety of life...
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- Jensen Tire Auto is deciding whether to purchase a maintenance contract for its new computer wheel alignment and balancing machine. Managers feel that maintenance expense should be related to usage, and they collected the following information on weekly usage (hours) and annual maintenance expense (in hundreds of dollars). a. Develop a scatter chart with weekly usage hours as the independent variable. What does the scatter chart indicate about the relationship between weekly usage and annual maintenance expense? b. Use the data to develop an estimated regression equation that could be used to predict the annual maintenance expense for a given number of hours of weekly usage. What is the estimated regression model? c. Test whether each of the regression parameters 0 and 1 is equal to zero at a 0.05 level of significance. What are the correct interpretations of the estimated regression parameters? Are these interpretations reasonable? d. How much of the variation in the sample values of annual maintenance expense does the model you estimated in part (b) explain? e. If the maintenance contract costs 3,000 per year, would you recommend purchasing it? Why or why not?arrow_forwardMethod of Least Squares Refer to the information for Luisa Crimini on the previous page. Required: 1. Using a computer spreadsheet program such as Excel, run a regression on these data. Based on the regression output, write the cost formula for tanning. (Note: Round the fixed cost to the nearest dollar and the variable rate to the nearest cent.) 2. Using the formula computed in Requirement 1, what is the predicted cost of tanning services for September for 2,500 appointments? Use the following information for Exercises 3-44 through 3-46: Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows:arrow_forward2. 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?arrow_forward
- Lising Therapy has a physical therapist who performs electro-mechanical treatments for its patients. During April, Lising had the following cost and output information: Required: 1. Calculate the cost per treatment for April. 2. Calculate the cost of services sold for April. 3. What if Lising found a way to reduce overhead costs by 20 percent? How would this affect the profit per treatment?arrow_forwardIn 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)arrow_forwardIn the cost formula, the term 128,000,000 a. is the total variable cost. b. is the dependent variable. c. is the variable rate. d. is the total fixed cost. 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)arrow_forward
- APA Medical Center has collected data on all of its activities for the past seven months. Data for the cardiac nursing care follow (Month, Cost, Hours of Nursing Care, respectively): September 2012 P69,500 for 1,700 hours; October 2012 P64,250 for 1,550 hours; November 2012 P52,000 for 1,200 hours; December 2012 P66,000 for 1,600 hours; January 2013 P83,000 for 1,800 hours; February 2013 P66,550 for 1,330 hours; March 2013 P79,500 for 1,700 hours. Upon looking into the events that happened at the end of 2012, you find that the cardiology ward bought a cardiac monitoring machine for the nursing station. A decision was also made to add a new supervisory position for the evening shift. Monthly depreciation on the monitor and the salary of the new supervisor totals P10,000. Calculate the fixed cost and variable rate applicable to March 2013arrow_forwardUsing the least-squares method of analyzing costs, answer the following questions and show computations to support your answers. a. What is the estimated variable portion of maintenance costs per labor hour? B.What is the estimated fixed maintenance cost each month? C.Formulate the regression equation D.If it is estimated that 600 labor hours will be used in July, what is the expected total power cost for July?arrow_forwardAssume that the manager of the rehabilitation department of Getwell Hospital is setting the price on a new outpatient service for electrical stimulation of muscles. Here are the relevant data estimates: Variable cost per visit: $15.00 Annual direct fixed costs: $650,000 Annual overhead allocation: $75,000 Expected annual visits: 8,000 What price per visit must be set for the service to breakeven?arrow_forward
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