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 of occupancy, the hospital's operating costs are $32 per occupied bed per day, assuming a 30-day month. This $32 figure contains both variable and fixed cost elements

(a) Estimate the variable cost per occupied bed on a daily basis using the high-low method.

(b) Estimate the total fixed operating costs per month using the high-low method.

Assume an occupancy rate of 70% per month. What amount of total operating cost would you expect the hospital to incur? (Omit the "$" sign in your response.)


Fixed costs $
Variable costs
Total expected costs $


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Explanation / Answer

At 80% occupancy, no of beds occupied = 450*80% = 360
So No of occupied bed days = 360*30 = 10800
Total Operating cost for 30 days = 10800*$32 = $345,600

At 60% occupancy, no of beds occupied = 450*60% = 270
So No of occupied bed days = 270*30 = 8100
Total Operating cost for 30 days = $326,700

Using High low method,
Differnce in bed days = 80%-60% = 20%*450*30 = 90*30 = 2700 beddays
Diff of Operating cost = 345600-326700 = $18900
So Variable Cost per bed day= $18900/2700 =$7
Fixed Cost = Total Operating cost at 60% - Var cost for 60% occupancy beddays
ie FC = $326700 - 8100*$7 = $270,000
Cost Function, C = 270,000 + 7*B
where, C = total Cost
B = Occupied Bed Days

2. For 70% occupancy, Bed days are 450*70%*30 = 9450
So Operating cost = 270,000+7*9450 = $336,150

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