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Question: Question One: (6 Points) A hospital’s records show that the cost of carrying out health checks in the last five accounting periods have been as follows: Period Number of patients seen Total cost 650 $17,125 2 940 17,800 3 1260 18,650 4 990 17,980 1150 18,360 Required: Using high-low method, 1. Estimate the cost function. 2. Estimate the total cost for period 6 if the number of patients seen is 1500. 3. What is the difference between using the High – low method and Least Square (Regression) method. – Free Chegg Question Answer

Transcribed text From Image: Question One: (6 Points) A hospital's records show that the cost of carrying out health checks in the last five accounting periods have been as follows: Period Number of patients seen Total cost 650 $17,125 2 940 17,800 3 1260 18,650 4 990 17,980 1150 18,360 Required: Using high-low method, 1. Estimate the cost function. 2. Estimate the total cost for period 6 if the number of patients seen is 1500. 3. What is the difference between using the High – low method and Least Square (Regression) method.

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1. High low method is a way of separating fixed and variable cost, It takes cost at highest and lowest activity to find variable costs.

HighLow
activity1260$18,650
Unit650$17,125
change610[1260-650]$1,525[18650-17125]

variable costs= change in cost/ change in activity

=$1,525/610

=$2.5 per patient

Cost function

Y= a+bX

where,

Y = total cost

a= Total fixed cost

b= variable cost per patient

X= number of patient

$17,125=fixed cost + $2.5*650

$17,125= fixed cost+1,625

Fixed cost = $17,125-1,625

=$15,500

Cost function:

Y = $15,500+$2.5X

2. cost for 1,500 patients

Y = $15,500+$2.5*1,500

=$15,500+$3,750

=$19,250

Cost for period 6 is $19,250

3.Difference

High -Low methodleast square regression
DefineHigh low method is a way of separating fixed and variable cost, It takes cost at highest and lowest activity to find variable costs.Least square regression is a technique used for estimating relationship between variables
methodIt represents how costs changes at highest and l owest activityvariable cost = change in cost/change in levelIt helps in understanding how the one dependent variable will change when one independent variable is variable and another one is fixed.The variable are ploted on a straight line.
inflationIt considers only extreme activity so it excludes effect of inflation while estimating costs.It takes into account all the data available at all levels of activity.so it consider inflation
ReliabilityHigh low method may not give accurate result. So it is less reliableRegression analysis is better than high low method.it is more reliable to use.

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