Akaya Dawson is the Chief Operating Officer at Mercy Hospital in Atlanta, Georgia. She is analyzing the hospital’s overhead costs but is not sure whether nursing hours or the number of patient days would be the best cost driver to use for predicting the hospital’s overhead. She has gathered the following information for the last six months of the most recent year:

Requirements:

1. Are the hospital’s overhead costs fixed, variable, or mixed? Explain.
2. Graph the hospital’s overhead costs against nursing hours. Use Excel or graph by hand.
3. Graph the hospital’s overhead costs against the number of patient days. Use Excel or graph by hand.
4. Do the data appear to be sound, or do you see any potential data problems? Explain.
5. Use the high-low method to determine the hospital’s cost equation using nursing hours as the cost driver. Predict total overhead costs if 25,500 nursing hours are predicted for the month.
6. Dawson runs a regression analysis using nursing hours as the cost driver to predict total hospital overhead costs. The Excel output from the regression analysis is as follows:

If 25,500 nursing hours are predicted for the month, what is the total predicted hospital overhead?

If 3,680 patient days are predicted for the month, what is the total predicted hospital overhead?
8. Which regression analysis (using nursing hours or using number of patient days as the cost driver) produces the best cost equation? Explain your answer.

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Hospital Number Overhead Overhead Overhead Nursing of Patient Cost per Cost per Month Costs Hours Days Nursing Hour Patient Day July. $483,000 24,500 3,790 $19.71 $127.44 August.. $535,000 28,500 4,310 $18.77 $ 124.13 September........... $411,000 19,500 4,230 $21.08 $ 97.16 October.......... $451,000 20,500 3,450 $22.00 $130.72 November. $576,000 32,000 5,710 $18.00 $ 100.88 December............ $446,000 20,000 3,290 $22.30 $ 135.56