Further to the information provided in Review Problem 2, assume that all of the fixed costs pertain to the two full-time staff members who process each patient being admitted to the hospital. Each staff member is paid a salary of $4, 750 per month. The variable cost per admission relates to items such as the patient identification bracelet issued to each patient, the medical history form that must be completed by each patient, and so on. You can also assume that the maximum number of patients that the two staff members can admit during any given month is 2,000. Further, if fewer than 1,000 patients were to be admitted per month on an ongoing basis, only one full-time staff member would be required.

Required:
What is the relevant range of activity for which the cost formula you calculated in Review Problem 2 applies? Discuss how management at Red Deer Hospital could use the additional information provided above to estimate costs if the number of admissions is expected to exceed 2,000 on a regular basis or to fall below 1,000 on a recurring basis.

Data from Review Problem 2

The Controller at the Red Deer Hospital has asked for a cost formula that separates the fixed and variable components of the costs for the Patient Admissions Department. Monthly costs and the number of patients admitted for the past IO months are shown below:

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Month January February March April May June July August September October November December Number of Patients Admitted 1,800 1,900 1,700 1.600 1,500 1,300 1,100 1,200 1,400 1,650 1,825 1,375 Admissions Department Costs $14,700 $15,200 $13,700 $14.000 $14,300 $13,100 $12,800 $13,000 $14,200 $14,300 $15,000 $13,150