[The following information applies to the questions displayed below.] The High-Low Method and Regression Analysis The Brenham General Hospital was approached by Health Food, Inc. (HFI) which specializes in the preparation of meals for institutional patients. HFI stated that it would 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. (Round "Variable Cost" to 2 decimal places and "Fixed Cost" answers to the nearest whole dollar amount.)

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?

January February March Dietician $ 2,875 875 Patient Days $ 1,382 1,312 1,186 1,012 2,875 1,322 April 914 May June July August September October November December 875 875 2,875 2,875 2,875 2,875 2,875 2,875 2,875 $ 34,500 Brenham General Hospital Other Staff Food Costs Maintenance $ 3,122 $ 9,674 $ 1,401 2,908 9,184 1,322 2,655 8,302 2,600 7,084 1,288 2,433 6,398 1,200 2,083 4,338 1,133 1,809 3,612 1,093 2,322 6,275 1,122 1,434 6,734 1,235 2,700 9,002 1,302 2,798 8,456 1,300 2,600 7,798 1,322 $ 29,464 $ 86,857 $ 15,040 Patient Equipment $ 1,649 1,415 1,313 1,105 1,089 1,011 900 1,112 1,103 1,300 1,442 1,396 $ 14,835 604 516 896 962 1,286 1,208 1,114 $ 12,392 Variable Cost Fixed Cost High-low method Regression analysis January February March Dietician $ 2,875 875 Patient Days $ 1,382 1,312 1,186 1,012 2,875 1,322 April 914 May June July August September October November December 875 875 2,875 2,875 2,875 2,875 2,875 2,875 2,875 $ 34,500 Brenham General Hospital Other Staff Food Costs Maintenance $ 3,122 $ 9,674 $ 1,401 2,908 9,184 1,322 2,655 8,302 2,600 7,084 1,288 2,433 6,398 1,200 2,083 4,338 1,133 1,809 3,612 1,093 2,322 6,275 1,122 1,434 6,734 1,235 2,700 9,002 1,302 2,798 8,456 1,300 2,600 7,798 1,322 $ 29,464 $ 86,857 $ 15,040 Patient Equipment $ 1,649 1,415 1,313 1,105 1,089 1,011 900 1,112 1,103 1,300 1,442 1,396 $ 14,835 604 516 896 962 1,286 1,208 1,114 $ 12,392 Variable Cost Fixed Cost High-low method Regression analysis