Exercise 3.17 Scattergraph Method, High-Low Method

Deepa Dalal opened a free-standing radiology clinic. She had anticipated that the costs for the radiological tests would be primarily fixed, but she found that costs increased with the number of tests performed. Costs for this service over the past nine months are as follows:

Required:

Month

January February March April May June July August September

Radiology Tests

2,800 2,600 3,100 3,500 3,400 3,700 3,840 4,100 3,450

Total Cost

$133,500 135,060 175,000 170,600 176,900 186,600 174,450 195,510 185,300

1. Prepare a scattergraph based on the preceding data. Use cost for the vertical axis and num- ber of radiology tests for the horizontal axis. Based on an examination of the scattergraph, does there appear to be a linear relationship between the cost of radiology service and the number of tests?

2. Compute the cost formula for radiology services using the high-low method.

3. Calculate the predicted cost of radiology services for October for 3,500 tests using the for- mula found in Requirement 2.