A hospital is analyzing its overhead costs. It is not clear whether the number of patient days
Question:
A hospital is analyzing its overhead costs. It is not clear whether the number of patient days or nursing hours would be the best cost driver to use in predicting the hospital’s overhead. The latest information on the hospital is as follows:
Month Hospital Nursing No. of Overhead Overhead Cost
Overhead Hours Patient Cost Per Per Patient
Costs Days Nursing Hr. Day
January $935,000 46,000 7,500 $20.33 $124.67
February $1,067,000 50,000 8,800 $21.34 $121.25
March $823,500 39,000 8,600 $21.10 $95.76
April $920,500 43,000 6,800 $21.41 $135.37
May $1,148,000 63,000 11,300 $18.22 $101.59
June $889,500 41,000 6,700 $21.70 $132.76
Graph the hospital’s overhead costs against the number of patient days. Graph the hospital’s overhead costs against nursing hours. Note: This is for your benefit so that you can answer Question A; you do not need to submit this graph as part of the assignment.
A. Does the data appear to be straight forward or do you see any potential problems with the data? Please explain.
B. Use the high-low method to determine the hospital’s cost equation using nursing hours as the cost driver. Round variable cost per nursing hour to two decimal places. Predict the overhead costs if 47,000 nursing hours are predicted for the month.
C. The hospital ran a regression analysis using nursing hours as the cost driver to predict total hospital overhead costs. Round variable cost per nursing hour to two decimal places. If 47,000 hours are predicted for the month, what is the total predicted hospital overhead? The regression analysis produced the following data:
Intercept | 345411.4 |
Slope | 13.15969 |
RSQ | 0.912608 |
D. The hospital then ran a regression analysis using the number of patient days as a cost driver. Round variable cost per patient day to two decimal places.
If 7,300 patient days are predicted for the month, what is the total predicted hospital overhead? The regression analysis produced the following data:
Intercept | 533184.2669 |
Slope | 51.9998873 |
RSQ | 0.551637364 |
E. Which regression analysis (using nursing hours or patient days as the cost driver) produces the best cost equation? Why is the method you selected the best predictor? Justify your answer.
Elementary Statistics
ISBN: 978-0538733502
11th edition
Authors: Robert R. Johnson, Patricia J. Kuby