Required: 

1. Assume that the relevant range is within 600 and 1200 patients. Use the high-low method to estimate the behavior of the clinic's administrative costs, based on patient load within the relevant range. Use an equation to express the results of this estimation method. 

2. What is your prediction of the clinic's administrative cost during a month when 800 patients visit the hospital?

3. Would you use the cost function from requirement 1 to predict the clinic's administrative cost for 300 patient visits? Explain your answer. 

4. Identify the number of emergency procedures, patient load and administrative costs for each month within the relevant range. 

5. If only patient load is considered as a determinant of administration costs and only the historical patient load data that falls within the relevant range (patient load between 600 and 1200) are considered, then simple regression can be used, utilizing Excel. Following is the results of regression analysis as per the given information in the case:

Does the inclusion of additional cost driver of emergency procedures improve the model? Explain your answer.

Transcribed Image Text:

'I don't understand this cost report at all', exclaimed John Carter, the newly appointed administrator of AngelCare General Hospital. 'Our administrative costs in the new paediatrics clinic are difficult to understand. On month the report shows $16, 600, and the next month it's $32, 200. What's going on?" Carter question was posed to Alice Baines, the hospital's accountant. The main problem is that the clinic has experience some widely varying patient loads in its first year of operation'. Baines replied. There seems to be some confusion in the public's mind about what services we offer in the clinic. When do they come to the clinic? When do they go the outpatients' department? That sort of thing. As the patient load has varied, we've frequently changed our clinic administrative staffing. Also, we have found that the number of emergency procedures varies each month, and emergency procedures cause additional staff costs." Carter continued to puzzle over the report. Could you put some data together, Alice, so we can see how this cost behaves over a range of patient loads?" 'You'll have it this afternoon', Baines responded. She set to work right away and gathered the following date: Month January February March April May June July August September October November December Number of emergency procedures 20 22 10 20 24 28 16 14 24 24 16 32 Patient load Administrative cost 2 800 1 000 800 2 000 2 600 1 800 2 200 600 1 400 2 400 1 200 3.000 $27 800 14 000 12 000 20 000 23 800 18 400 20 400 8 200 18 800 22 200 16 600 32 200 Baines does not believe that the first year's widely fluctuating patient load will be experienced again in future, she has estimated that the clinic's relevant range of monthly activity in the future will be 600 to 1 200 patients. 'I don't understand this cost report at all', exclaimed John Carter, the newly appointed administrator of AngelCare General Hospital. 'Our administrative costs in the new paediatrics clinic are difficult to understand. On month the report shows $16, 600, and the next month it's $32, 200. What's going on?" Carter question was posed to Alice Baines, the hospital's accountant. The main problem is that the clinic has experience some widely varying patient loads in its first year of operation'. Baines replied. There seems to be some confusion in the public's mind about what services we offer in the clinic. When do they come to the clinic? When do they go the outpatients' department? That sort of thing. As the patient load has varied, we've frequently changed our clinic administrative staffing. Also, we have found that the number of emergency procedures varies each month, and emergency procedures cause additional staff costs." Carter continued to puzzle over the report. Could you put some data together, Alice, so we can see how this cost behaves over a range of patient loads?" 'You'll have it this afternoon', Baines responded. She set to work right away and gathered the following date: Month January February March April May June July August September October November December Number of emergency procedures 20 22 10 20 24 28 16 14 24 24 16 32 Patient load Administrative cost 2 800 1 000 800 2 000 2 600 1 800 2 200 600 1 400 2 400 1 200 3.000 $27 800 14 000 12 000 20 000 23 800 18 400 20 400 8 200 18 800 22 200 16 600 32 200 Baines does not believe that the first year's widely fluctuating patient load will be experienced again in future, she has estimated that the clinic's relevant range of monthly activity in the future will be 600 to 1 200 patients.

Answer rating: 100% (QA)

RELEVANT RANGE DATA Y Month Patient Load Number of Emergency Procedures Admin Cost February 1000 22 ... View the full answer