You have been asked by the Royal University Hospital to assist in estimating their cost structure so that management is better able to plan and control the business affairs of the Magnetic Resonance Imaging (MRI) department. The manager of the MRI department has asked you to assist in classifying the utility costs. Utility cost are very high in the department given that the MRI machine cannot be turned off due to the long warm-up period required for its use. When the MRI machine is used to scan a patient, it consumes an additional burst of power. You have been provided with the following data on utility costs and the use of the MRI scanner for the past year:
Month |
# of MRIs |
Total Utility Costs |
January |
455 |
$501,200 |
February |
482 |
511,210 |
March |
587 |
611,000 |
April |
550 |
622,000 |
May |
415 |
467,000 |
June |
535 |
550,000 |
July |
568 |
601,000 |
August |
498 |
504,500 |
September |
401 |
492,000 |
October |
525 |
582,000 |
November |
500 |
507,800 |
December |
511 |
525,000 |
The hospital would like to be able to estimate their patient costs using the number of patients as the basis for estimation. They have approached you for help.
Required
Requirement 1: Compute total utility cost when the expected MRI scans are 540 per month as follows
Total utility cost = Fixed cost + (Variable cost per MRI scan × Number of MRI scans)
= $135,270 + ($804.96 × 540 per MRI scan)
= $569,946
Requirement 2: Compute total utility cost when the expected MRI scans are 0 per month as follows
Total utility cost = Fixed cost + (Variable cost per MRI scan × Number of MRI scans)
= $135,270 + ($804.96 × 0 per MRI scan)
= $135,270
Requirement 3: Compute total utility cost when the expected MRI scans are 3,105 per month as follows
Total utility cost = Fixed cost + (Variable cost per MRI scan × Number of MRI scans)
= $135,270 + ($804.96 × 3,105 per MRI scan)
= $2,634,658
Note: Compute fixed and variable costs using the intercept and slope functions of Excel as follows:
Requirement 4: Prepare the scatter-graph as follows
Prepare the total cost equation as follows
Y = $135,270 + $804.96X
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