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Group B

1. P6-77B

Analyze cost behavior at a hospital using various cost estimation methods (Learning

Objectives 1, 2, 3, 4 &amp; 5)

Freida Dudley is the Chief Operating Officer at Memorial Hospital in Scandia,

Minnesota. She is analyzing the hospital?s overhead costs but is not sure whether nursing

hours or the number of patient days would be the best cost driver to use for predicting the

hospital?s overhead. She has gathered the following information for the last six months of

the most recent year:

Hospital

Costs

July

\$462,000

August

\$510,000

September \$401,000

October \$445,000

November \$556,000

December \$430,000

Month

1.

Nursing Number of

Hours Patient Days

22,900

26,300

17,500

21,700

30,000

19,000

3,610

4,330

4,250

3,460

5,740

3,230

per Nursing

Hour

\$20.17

\$19.39

\$22.91

\$20.51

\$18.53

\$22.63

per Patient Day

\$127.98

\$117.78

\$?94.35

\$128.61

\$?96.86

\$133.13

Requirements

1. Are the hospital?s overhead costs fixed, variable, or mixed? Explain.

2. Graph the hospital?s overhead costs against nursing hours. Use Excel or graphby

hand.

3. Graph the hospital?s overhead costs against the number of patient days. Use Excel

or graph by hand.

4. Do the data appear to be sound or do you see any potential data problems?

Explain

5. Use the high-low method to determine the hospital?s cost equation using nursing

hours as the cost driver. Predict total overhead costs if 23,500 nursing hours

arepredicted for the month.

6. Ms. Dudley runs a regression analysis using nursing hours as the cost driver

topredict total hospital overhead costs. The Excel output from the regression

analysisis shown next:

If 23,500 nursing hours are predicted for the month, what is the total predicted hospital

7. Ms. Dudley then ran the regression analysis using number of patient days as the

cost driver. The Excel output from the regression is shown here:

If 3,300 patient days are predicted for the month, what is the total predicted hospital overhead?

8. Which regression analysis (using nursing hours or using number of patient days as

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