High-Low Method; Predicting Cost.
The number of X-rays taken and X-ray costs over the last nine months in Beverly Hospital are given below:
Month | X-Rays Taken | X-Ray Costs |
January…………… | 6,250 | $28,000 |
February.………… | 7,000 | $29,000 |
March……………. | 5,000 | $23,000 |
April……………… | 4,250 | $20,000 |
May……………… | 4,500 | $22,000 |
June……………… | 3,000 | $17,000 |
July………………. | 3,750 | $18,000 |
August…………… | 5,500 | $24,000 |
September..……… | 5,750 | $26,000 |
Required:
I. Using the high-low method. estimate the cost formula for X-ray costs.
2. Using the cost formula you derived above. what X-ray costs would you expect to be incurred during a month in which 4.600 X-rays are taken?
3. Prepare a scattergraph using the data given above, Plot X-ray costs on the vertical axis and the number of X-rays taken on the horizontal axis. Draw a straight line through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y -axis.
4. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $6.529.41 per month and the variable cost to be $3.29 per X-ray taken. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors?
5. Using the least-squares regression estimates given in requirement 4, what X-ray costs would you expect to be incurred during a month in which 4,600 X-rays are taken?
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