Question:
Suzanne Spahr is the Chief Operating Officer at Union Hospital in Forest Lake, Minnesota. She is analyzing the hospital's overhead costs but is not sure whether nursing hours or the number of patient days would be the best cost driver to use for predicting the hospital's overhead. She has gathered the following information for the last six months of the most recent year:
-1.png)
Requirements
1. Are the hospital's overhead costs fixed, variable, or mixed? Explain.
2. Graph the hospital's overhead costs against nursing hours. Use Excel or graph by hand.
3. Graph the hospital's overhead costs against the number of patient days. Use Excel or graph by hand.
4. Do the data appear to be sound or do you see any potential data problems? Explain.
5. Use the high-low method to determine the hospital's cost equation using nursing hours as the cost driver. Predict total overhead costs if 26,000 nursing hours are predicted for the month.
6. Ms. Spahr runs a regression analysis using nursing hours as the cost driver to predict total hospital overhead costs. The Excel output from the regression analysis is shown next.
If 26,000 nursing hours are predicted for the month, what is the total predicted hospital overhead?
7. Ms. Spahr then ran the regression analysis using number of patient days as the cost driver. The Excel output from the regression is shown here:
If 3,700 patient days are predicted for the month, what is the total predicted hospital overhead?
8. Which regression analysis (using nursing hours or using number of patient days as the cost driver) produces the best cost equation? Explain your answer.
Transcribed Image Text:
Hospital Overhead Nursing of Patient Cost per Number Overhead Overhead Cost per Patient Day $127.63 $123.85 $ 99.76 $133.91 $103.39 $139.14 Month Costs Hours Nursing Hour Days $485,000 25,000 3,800 $540,000 26,700 4,360 420,000 20,000 4,210 $462,000 21,900 3,450 $579,000 32,000 5,600 $455,000 20,400 3,270 2 August Septemb October.. November December $20.22 er... $18.09 $22.30 2 2 ...S 1 SUMMARY OUTPUT - Nursing hours as cost driver Regression Statistics 4Multiple R 5 R Square 6 Adjusted R Square 7 Standard Eror 8 Observations 0.967848203 0.936730144 0.92091268 16568.3268 10 ANOVA df MS 12 Regression 13 Residual 14 Total 15 16256795521 16256795521 59.2212594 0.001533989 1098037812274509453 Coefficients Standard Error 39923.061 1.617 t Stat P-value 95% 95.0% 95.0% 17 Intercept 18 X Variable 1 4.694 187378.980 12.440 0.009 76534.789 298223.164 76534.789 298223.164 16.993 7.696 0.002 7.954 16.933 7.954 1 SUMMARY OUTPUT - Using number of patient days as cost driver Regression Statistics 4Multiple R 5 R Square 0.75770497 0.574116821 0.467646026 42985.84532 7 Standard Eror 8 Observations 10 ANOVA df 9963701742 9963701742 5.392246976 7391131591 1847782898 0.08094813 13 Residual 14 Total 15 5 17354833333 LowerUpper 95.0% Coefficients Standard Error 95772.174 22.880 t Stat 95% 5631.253 537443.6205631.253 537443.620 95% 95.0% 17 Intercept 271537.440 18 XVariable 1 2.835 0.047 53.130 2.322 0.081 10.395 116.655 10.395 116.655
-2.png)
-3.png)
