Regression Coefficient Mixed Costs at a Hospital
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Mixed costs are very common in business and consist of fixed cost element and a variable cost element. Fixed costs are a recurring, constant cost that does not vary when business activity varies. Variable costs are added costs associated with each unit of business activity the organization experiences. The relationship can be characterized by the following equation:
Total costs = Fixed Cost + (cost per unit) x (number of units of business activity)
In a leading managerial accounting textbook, the authors discuss a hospital's total maintenance costs, and use regression analysis to estimate the fixed cost element of maintenance and the variable cost associated with the number of patient-days. The hospital's total maintenance costs and number of patient-days for seven months are listed in the following table and stored in the file (MixedCosts).
Problem:
A. Using total maintenance costs as the dependent variable and patient-days as the independent variable, use the least-squares method to find the regression coeffiecients bo and b1.
B. Which regression coefficient represents fixed cost?
C. Which regression coefficient represents the variable cost per each patient-day?
D. Predict total maintenance costs for a month with 7,500 patient-days.
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Solution Summary
A regression coefficient mixed costs at a hospital are examined.
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a) mean of patient days: ux=(5600+7100+5000+6500+7300+8000+6200)/7=6528.571
Sx=sqrt(((5600-6528.571)^2+(7100-6528.571)^2+...+(6200-6528.571)^2)/(7-1))=1032.334
mean of costs: ...
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