High-Low Method; Predicting Cost [LO3, LO4]

The number of X-rays taken and X-ray costs over the last nine months in Beverly Hospital are given below:

Required:
1. 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?

Transcribed Image Text:

Month X-Rays Taken X-Ray Costs January February 6,250 $28,000 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