Accounting

Having some trouble and need some help! Hope there is someone out there that can help me!!

Here is the problem:

The number of x-rays taken and x-ray costs over the last nine months at Beverly Hospital are given below:

Month. X-rays taken. X-ray costs

Jan. 6,250. $28,000

Feb. 7,000. 29,000

Mar. 5,000. 23,000

Apr. 4,250. 20,000

May. 4,500. 22,000

June. 3,000. 17,000

July. 3,750. 18,000

Aug. 5,500. 24,000

Sept. 5,750. 26,000

1. Using the high-low method, estimate a cost formula for x-ray costs

2. Using the cost formula you derived above, what x-ray costs would you expect to be incurred during a month in which 4,600 x-rays are taken?

Thank you in advance! :)

2 years ago Report Abuse

JKRB

Best Answer - Chosen by Voters

1. Using the high-low method, estimate a cost formula for x-ray costs

Subtract the lowest cost driver amount and its cost from the the highest cost driver and its cost.

7,000 - 3,000 = 4,000; 29,000 - 17,000 = 12,000

Divide the cost amount by the cost driver amount.

12,000 / 4,000 = $3.00 this is your variable cost

Subtract the variable cost times the high cost driver from the high cost amount.

29,000 - (3.00 x 7,000) = 8,000 this is your fixed cost*

*Note: You can also use the low cost driver and the low cost amount, the answer will come out the same.

So the cost formula will be:

y = 8,000 + 3x

2. Using the cost formula you derived above, what x-ray costs would you expect to be incurred during a month in which 4,600 x-rays are taken?

y = 8,000 + (3 x 4,600)

y = 8,000 + 13,800

y = $21,800 x-ray costs

2 years ago