Cost Function using High Low Method
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I believe that I have done #1 correctly. I am confused as to how to figure out question #2. Please show all calculations used to arrive at the answer.
The number of X-rays taken and X-ray costs at a hospital over the last nine months are:
Month X-Rays Taken X-Ray Cost
January 6,250 $28,000
February 7,000 29,000
March 5,000 23,000
April 4,250 20,000
May 4,500 22,000
June 3,000 17,000
July 3,750 18,000
August 5,500 24,000
September 5,750 26,000
1. Use high-low method, estimate the cost formula for X-ray costs.
29,000 17,000 = 12,000 = $3.00
7,000 3,000 4,000
$29,000
-21,000 ($3.00 X 7,000 = 21,000)
$ 8,000
2. Using the cost formula you derived above, what X-ray costs would you expect to be incurred during a month in which 4,600 X-rays are taken?
29,000 17,000 = 12,000 = $5.00
7,000 4,600 2,400
$29,000
35,000 ($5.00 X 7,000 = 35,000)
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Solution Summary
The solution explains how to derive the cost function using high low method and to use the cost function to calculate the total costs.
Solution Preview
We first find the cost function. We take the highest and the lowest cost.
7,000 xrays cost 29,000
3,000 x rays cots 17,000
Then take the ...
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