The Brenham General Hospital was approached by Health Food, Inc. (HFI) which specializes in the preparation of meals

for institutional patients. HFI stated it will prepare all inpatient meals to provider specifications and deliver them on

time for $11.50 per day per patient. The hospital was facing a steady decline in bed occupancy and was determined to hold

the line on costs wherever possible.

Hospital management did not have a clear idea what the present system of providing meals to patients was costing.

Hospital staff gathered the information below, which covered expenses for the dietary department for the past year.

The hospital has 120 beds. It is open year-round and has a 33% percent occupancy rate.

It was determined that the dietitian provided valuable counseling and advising services. Should the hospital eliminate

in house meal preparation, it would want to retain her services. Also, the administration wanted to keep and maintain the

kitchen and equipment.

Required:

1. Using the high-low method and regression analysis, determine the variable and fixed costs of the in-house meal service

assuming the cost driver is patient days.

2. Which cost estimation method would you choose and why?

3. Should the hospital administration accept the offer of the outside company? Why or why not?

Other Food Patient Patient

Dietician Staff Costs Maintenance Equipment Days

January $ 2,875 $ 3,122 $ 9,674 $ 1,401 $ 1,649 $ 1,382

February 2,875 2,908 9,184 1,322 1,415 1,312

March 2,875 2,655 8,302 1,322 1,313 1,186

April 2,875 2,600 7,084 1,288 1,105 1,012

May 2,875 2,433 6,398 1,200 1,089 914

June 2,875 2,083 4,338 1,133 1,011 604

July 2,875 1,809 3,612 1,093 900 516

August 2,875 2,322 6,275 1,122 1,112 896

September 2,875 1,434 6,734 1,235 1,103 962

October 2,875 2,700 9,002 1,302 1,300 1,286

November 2,875 2,798 8,456 1,300 1,442 1,208

December 2,875 2,600 7,798 1,322 1,396 1,114

$ 34,500 $ 29,464 $ 86,857 $ 15,040 $ 14,835 $ 12,392