ltouls Sold. 27 Trane Medical Cinic offers a number of specialized medical servi
ID: 2512012 • Letter: L
Question
ltouls Sold. 27 Trane Medical Cinic offers a number of specialized medical services. A review of data for the year j b ended revealed variable costs of $32 per patient day; annual fixed costs of $480,000, which are incur 2 throughout the year, and semivariable costs that displayed the following behavior at the "peak" and activity January (2,400 patient days): $258,400 August (2,900 patient days): $278,900 Required: A. Calculate the total cost for an upcoming month (2,800 patient days) if current cost behavior patter continue. Trane uses the high-low method to analyze cost behavior B. There is a high probability that Trane's volume will increase in forthcoming months as patients tak advantage of new scientific advances. Can the data and methodology used in part (a) for predicting th 2,800 patient days be employed to estimate the costs for, say, 3,800 patient days? Why or why not?Explanation / Answer
Answer
Working of High Low method to find Variable and Fixed cost components in Semi Variable Cost
Cost
Patient days
August
$278900
2900
January
$258400
2400
Difference
$20500
500
Difference in cost
$20500
Difference in patient days
500
Variable cost per patient day
$41
Working
August
January
A
Patient days
2900
2400
B=A x $41
Variable cost @$41 per patient days
118900
98400
C [given]
Total cost
278900
258400
D=C - B
Fixed Cost
$160000
$160000
TOTAL VARIABLE COST:
Variable cost per unit
$32
Variable part of semi-variable cost
$41
Total variable cost per patient day
$73
TOTAL FIXED COST:
Fixed cost
$480000
Fixed part of semi variable cost
$160000
Total Fixed cost
$640000
Answer
A
Patient days
2800
B [calculated above]
variable cost per patient days
$73
C=AxB
Total Variable cost
$204,400
D
Total Fixed Cost
$640,000
E=C+D
Total cost for upcoming month
$844,400
No, the data and methodology used in Part A cannot be employed to estimate the cost for 3800 patient days because:
--High Low method is not suitable for range above High Level or below Low Level,
--there has been change and now there exist advantage of new scientific advances due to which the cost behaviour is subject to change.
Cost
Patient days
August
$278900
2900
January
$258400
2400
Difference
$20500
500
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.