I dont understand this cost report at all, exclaimed Jeff Mahoney, the newly appointed administrator of Mountainview General Hospital. Our administrative costs in the new pediatrics clinic are all over the map. One month the report shows $8,300, and the next month its $16,100. Whats going on? Mahoneys question was posed to Megan McDonough, the hospitals director of Cost Management. The main problem is that the clinic has experienced some widely varying patient loads in its first year of operation. There seems to be some confusion in the publics mind about what services we offer in the clinic. When do they come to the clinic? When do they go to the emergency room? That sort of thing. As the patient load has varied, weve frequently changed our clinic administrative staffing. Mahoney continued to puzzle over the report. Could you pull some data together, Megan, so we can see how this cost behaves over a range of patient loads? Youll have it this afternoon, McDonough responded. Later that morning, she gathered the following data: Month Patient Load Administrative Cost

January 1,400 $ 13,900

February 500 7,000

March 400 6,000

April 1,000 10,000

May 1,300 11,900

June 900 9,200

July 1,100 10,200

August 300 4,100

September 700 9,400

October 1,200 11,100

November 600 8,300

December 1,500 16,100

McDonough does not believe the first years widely fluctuating patient load will be experienced again in the future. She has estimated that the clinics relevant range of monthly activity in the future will be 600 to 1,200 patients.

Required: 1-a. Use the high-low method to estimate the cost behavior for the clinics administrative costs. Express the cost behavior in formula form (Y = a + bX).

1-b. Text 3. Which of the following points should be in included in a memo to the hospital administrator regarding these estimates?