Deepa Dalal opened a free-standing radiology clinic. She had anticipated that the costs for the radiological tests would be primarily fixed, but she found that costs increased with the number of tests performed. Costs for this service over the past nine months are as follows:
Month Radiology Test Total Cost
January 2,800 $135,500
February 2,600 $135,060
March 3,100 $175,000
April 3,500 $170,600
May 3,400 $176,900
June 3,700 $186,600
July 3,840 $174,450
August 4,100 $195,510
September 3,450 $85,300
1) Compute the cost formula for radiology services using the high-low method.
2) Calculate the predicted cost of radiology services for October for 3,500 tests using the formula found in Requirement 1.

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facundobuzzetti facundobuzzetti · Answer 1 · 2020-10-07T02:33:54+02:00

Answer:

Results are below.

Explanation:

To calculate the fixed and variable cost under the high-low method, we need to use the following formulas:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (195,510 - 135,060) / (4,100 - 2,600)

Variable cost per unit= $40.3

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 195,510 - (40.3*4,100)

Fixed costs= $30,280

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 135,060 - (40.3*2,600)

Fixed costs= $30,280

Now, the total cost for 3,500 tests:

Total cost= 30,280 + 40.3*3,500

Total cost= $171,330