Question

1. The below table includes the number of X-Rays taken and X-Ray costs over the last nine months at VG Hospital. X-Rays Taken X-Ray Costs Jan 6,250 $28,000 Feb 7,150 $33,500 Mar 5,000 $23,000 Apr 4,250 $20,000 May 4,500 $22,000 Jun 3,000 $18,310 Jul 3,500 $19,000 Aug 5,500 $24,000 Sep 5,750 $26,000 (round your answers to nearest dollar for “a” and two decimal places for “b” in your Y = a + bX formula)

a) Calculate the "b" (Variable Cost component, the slope of the line) for the Y = a + bX cost function for X-Ray costs (to two decimal places)

b) Using your cost function, predict what the X-Ray costs would be in October if you expect 5150 X-Rays
(enter response to the nearest dollar)

Answer 1

a) b=$3.66

using high low method,

b=(cost of highest activity level-cost of lowest activity level)/( highest activity level-lowest activity level)

cost of highest activity level=$33500

cost of lowest activity level=$18310

highest activity level=7150

lowest activity level=3000

b=($33500-$18310)/(7150-3000)=$3.66

b) total expected cost for the month of october is $26180

a or fixed cost=total cost- variable cost

for the highest activity level

total cost =$33500

variable cost=$3.66*7150=$26169

so

a or fixed cost=$33500-$26169=$7331

cost function is y=7331+3.66x

for the month of october the expected x-rays are 5150,using the cost funtion

y or total cost=7331+(3.66*5150)=$26180