Apollo Hospital specializes in outpatient surgeries for relatively minor procedures. Apollo is a nonprofit institution and places great emphasis on controlling costs in order to provide services to the community in an efficient manner. Apollo’s CFO, Julie Chen, has been concerned of late about the hospital’s consumption of medical supplies. To better understand the behavior of this cost, Julie consults with Rhett Bratt, the person responsible for Apollo’s cost system. After some discussion, Julie and Rhett conclude that there are two potential cost drivers for the hospital’s medical supplies costs. The first driver is the total number of procedures performed. The second is the number of patient-hours generated by Apollo. Julie and Rhett view the latter as a potentially better cost driver because the hospital does perform a variety of procedures, some more complex than others. Rhett provides the following data relating to the past year to Julie.

1. Estimate the regression equation for
(a) Medical supplies costs and number of procedures
(b) Medical supplies costs and number of patient-hours. You should obtain the following results:
Regression 1: Medical supplies costs = a + (b * Number of procedures)

Regression 2: Medical supplies costs = a + (b * Number of patient-hours)

2. On different graphs plot the data and the regression lines for each of the following cost functions:
a. Medical supplies costs = a + (b * Number of procedures)
b. Medical supplies costs = a + (b * Number of patient-hours)
3. Evaluate the regression models for “Number of procedures” and “Number of patient-hours” as the cost driver according to the format of Exhibit.
4. Based on your analysis, which cost driver should Julie Chen adopt for Apollo Hospital? Explain youranswer.

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Month Medical Supplies costs Number of procedures Number of patient -hours $106,000 230,000 84,000 238,000 180,000 210,000 92,000 222,000 78,000 127,000 225,000 320 500 240 520 240 340 420 2,000 3,900 1,900 4,100 3,400 3,700 3,100 1,200 3,000 1,300 2,800 3,800 320 180 440 12 Variable Constant Independent variable: No. of procedures 361.91 2 0.36, Durbin-Watson statistic 2.48 Coefficient Standard Error Value $36 939.77 $56,504.86 152.93 0.65 2.37 Variable Constant Independent variable: No. of patient-hous 20.84, Drbin-Watson statistic 1.91 Coefficient Standard ErValue $3,654.86 23,569.51 $ 7.82 0.16 7.25 56.76