Question

Variable and Fixed Costs, Cost Formula, High-Low Method Li Ming Yuan and Tiffany Shaden are the department heads for the accounting department and human resources department, respectively at a large testle the other United States. They have just returned from an executive meeting at which the necessity of cutting costs and gaining licency has been stressed Ar e ndom of her staff members, as well as his own staff members, U Ming discovered that there were a number of costs associated with the claims processing activity. The concluded the salaries of the two paralegals who worked full time on claims processing, the salary of the accountant who cut the checks, the cost of claims forms, check, anvelopes, and postage and depreciation on the office equipment dedicated to the processing. Some of the paralegals' time appears to vary with the routine processing of uncontested claims, but considerable time also appears to be spent on the claims that have incomplete documentation or are contested. The accountant's time appears to vary with the number of claims processed. Ming was able to separate the costs of processing claims from the costs of running the departments of accounting and human resources. He gathered the data on cum processing cost and the number of claims processed per month for the past 6 months. These data are as follows: Number of Claims Processed Month Claims Processing Cost February 5,700 March $34,907 31,260 37,950 4,900 April 6,100 May 38,250 6,500 June 44,895 7,930 7,514 July 44,055 Required: 1. Classify the claims processing costs that Ming identified as variable and fed. Salaries of the two paralegals times the percentage of time spent in processing uncontested claims Variable costs Salaries of the two paralegals times the percentage of time spent in handling contested claims Depreciation on office equipment used in claims processing activity h a s the percentage of time spent in the cas processing activity

Answer 1

3.

Variable cost per claim = $44,895 - 31,260 / 7,930 - 4,900

Variable cost per claim = $13,635 / 3,030 = $4.5 per claim

Fixed cost per month = $44,895 - 35,685 ($4.5 * 7,930) = $9,210

Total cost of claims processing = $9,210 + ($4.5 per unit * Claims)