Question

Month	Hospital Overhead Cost	Nursing Hrs	# of Patient Days	Overhead Cost Per Nursing Hrs	Overhead cost Per Patient Day
July	965,000	51,000	8,000	18.92	120.63
August	1,000,000	53,000	9,000	18.86	111.11
September	830,000	38,000	8,750	21.84	94.86
October	925,000	43,000	7,000	21.51	132.14
November	1,100,000	65,000	12,000	16.92	91.67
December	900,000	42,000	7,900	21.42	113.92

• Now that you have calculated both the variable and fixed portions hospital overhead costs, write out the equation for hospital overhead costs using the high-low method.

• Using the cost equation that you just wrote, predict hospital overhead costs if 54,000 nursing hours are expended in a month.

Answer 1

High low method = High cost - Low cost / High activity - Low activity

Variable cost per nursing hour = $1,100,000 - 830,000 / 65,000 - 38,000

Variable cost per nursing hour = $270,000 / 27,000 = $10

Fixed costs = $1,100,000 - (65,000*$10)

Fixed costs = $1,100,000 - 650,000 = $450,000

Cost equation:

Total overhead costs = $450,000 + $10

Where, X is number of hospital hours

Total overhead costs if 54,000 nursing hours is used:

Total overhead costs = $450,000 + $10*54,000

Total overhead costs = $450,000 + 540,000 = $990,000