Cost Behavior, High-Low Method, Pricing Decision St. Teresa's Medical Center (STMC) offers a number of specialized medical services, including neuroscience, cardiology, and oncology. STMC's strong reputation for quality medical care allowed it to branch out into other services. It is now ready to expand its orthopedic services and has just added a free-standing orthopedic clinic offering a full range of outpatient, surgical, and physical therapy services. The cost of the orthopedic facility is depreciated on a straight-line basis. All equipment within the facility is leased. Since the clinic had no experience with in-patient orthopedic services (for patients recovering from hip and knee replacements, for example), it decided to operate the orthopedic center for two months before determining how much to charge per patient day on an ongoing basis. As a temporary measure, the clinic adopted a patient-day charge of $190, an amount equal to the fees charged by a hospital specializing in orthopedic care in a nearby city. This initial per-day charge was quoted to patients entering the orthopedic center during the first two months with assurances that if the actual operating costs of the new center justified it, the charge could be less. In no case would the charges be more. A temporary policy of billing after 60 days was adopted so that any adjustments could be made. The orthopedic center opened on January 1. During January, the center had 4,000 patient days of activity. During February, the activity was 4,300 patient days. Costs for these two levels of activity output are as follows: 4,000 Patient Days 4,300 Patient Days Salaries, nurses $59,900 $59,900 Aides 33,900 33,900 Pharmacy 239,100 255,600 Laboratory 104,000 110,000 Depreciation 22,900 22,900 Laundry 202,000 217,150 Administration 23,900 23,900 Lease (equipment) 37,700 37,700