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Jaden Kyler is the Chief Operating Officer at United Hospital in Newark New Jersey. He is analyzing thehospital's overhead costs but is not sure whether

Jaden Kyler is the Chief Operating Officer at United Hospital in Newark New Jersey. He is analyzing thehospital'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.

He has gathered the following information for the last six months of the most recent year:

Data Table:

Hospital

Nursing

Number of

Overhead Cost

Overhead Cost

Month

Overhead Costs

Hours

Patient Days

per Nursing Hour

per Patient Day

July. . . . . . .

$479,000

23,000

3,640

$20.83

$131.59

August. . . .

$528,000

25,500

4,300

$20.71

$122.79

September.

$416,000

20,500

4,260

$20.29

$97.65

October. . . .

$453,000

22,000

3,490

$20.59

$129.80

November. .

$559,000

30,500

5,730

$18.33

$97.56

December.

$435,000

21,000

3,280

$20.71

$132.62

Requirements:

1. Are the hospital's overhead costs fixed, variable, ormixed? Explain.

The hospital's overhead costs appear to be a ▼(fixed, mixed, variable cost). If it were a ▼ (fixed, mixed, variable cost), it would remain constant in total each month. If it were a ▼ (fixed, mixed, variable cost), it would remain constant on a per unit (of activity) basis. Both of the hospital's overhead cost per nursing hour and overhead cost per patient day ▼ (are fixed, vary) with volume.

2. Graph the hospital's overhead costs against nursing hours.

3. Graph the hospital's overhead costs against the number of patient days.

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 24,500 nursing hours are predicted for the month.

6. Kyler 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:

Regression analysis using nursing hours

SUMMARY OUTPUT - Nursing hours as a cost driver

Regression Statistics

Multiple R

0.958335

R Square

0.918405

Adjusted R Square

0.898007

Standard Error

17,712.08289

Observations

6

ANOVA

df

SS

MS

F

Significance F

Regression

1

14,124,461,812

14,124,461,812

45.022814

0.002568

Residual

4

1,254,871,522

313,717,880

Total

5

15,379,333,334

Standard

Lower

Upper

Coefficients

Error

t Stat

P-value

95%

95%

Intercept

141,867.97

50,663.259

2.8

0.049

1,204.213

282,531.726

X Variable 1

14.17

2.111

6.71

0.000

8.305

20.029

If 24,500 nursing hours are predicted for the month, what is the total predicted hospitaloverhead?

7. Kyler then ran the regression analysis using a number of patient days as the cost driver. The Excel output from the regression is shown here:

Regression analysis using a number of patient days

SUMMARY OUTPUT - Using a number of patient days as a cost driver

Regression Statistics

Multiple R

0.736429

R Square

0.542327

Adjusted R Square

0.427909

Standard Error

41,948.4953

Observations

6

ANOVA

df

SS

MS

F

Significance F

Regression

1

8,340,628,301

8,340,628,301

4.739865

0.09505

Residual

4

7,038,705,032

1,759,676,258

Total

5

15,379,333,333

Standard

Lower

Upper

Coefficients

Error

t Stat

P-value

95%

95%

Intercept

289,807.47

88,271.2

3.283

0.03

44,727.331

534,887.615

X Variable 1

45.8

21.035

2.177

0.095

-12.607

104.198

If 3,650 patient days are predicted for the month, what is the total predicted hospitaloverhead?

8. Which regression analysis (using nursing hours or using a number of patient days as the cost driver) produces the best cost equation? Explain your answer.

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