CPA, adapted) PROBLEM 5-17 High-Low and Scattergraph Analysis [L02, LO3] Pleasant View Hospital of British Columbia has just hired a new chief to employ sound management and planning techniques in the business affairs of the hospital. Ac cordingly, she has directed her assistant to summarize the cost structure so that data will be available for planning purposes. administrator who is anxious The assistant is unsure how to classify the utilities costs in the Radiology Department since these costs do not exhibit either strictly variable or fixed cost behavior. Utilities costs are very high in the department due to a CAT scanner that draws a large amount of power and is kept running at l times. The scanner can't be turned off due to the long warm-up period required for its use. When the scanner is used to scan a patient, it consumes an additional burst of power. The assistant has ac cumulated the following data on utilities costs and use of the scanner since the first of the year Number of Scans Utilities Cost Month 60 70 90 120 100 130 150 140 110 80 $2,200 $2,600 $2,900 $3,300 $3,000 $3,600 $4.000 $3,600 $3,100 $2,500 January February. March April May June July. August September October The chief administrator has informed her assistant that the utilities cost is probably a mixed cost that will have to be broken down into its variable and fixed cost elements by use of a scatter graph. The assistant feels, however, that if an analysis of this type is necessary, then the high-low method should be used, since it is easier and quicker. The controller has suggested that there may be a better approach Required 1. Using the high-low method, estimate a cost formula for utilities. Express the formula in the form Y a + bX(The variable rate should be stated in terms of cost per scan) Prepare a scattergraph using the data above. (The number of scans should be placed on the horizontal axis, and utilities cost should be placed on the vertical axis.) Fit a straight line to the 2. plotted points using a ruler and estimate a cost formula for utilities using the quick-and-dirty method PROBLEM 5-18 (Appendix 5A) Least-Squares Regression Method [LO5) Refer to the data for Pleasant View Hospital in Problem 5-17 Required: 1. Using the least-squares regression method, estimate a cost formula for utilities. (Round the variable cost to two decimal places.) 2. Refer to the graph prepared in part (2) of Problem 5-17. Explain why in this case the high-low method would be the least accurate of the three methods in deriving a cost formula