The manager of the main laboratory facility at MetroHealth Center is interested in being able to predict the overhead costs each month for the lab. The manager believes that total overhead varies with the number of lab tests performed but that some costs remain the same each month regardless of the number of lab tests performed. The lab manager collected the following data for the first seven months of the year. (Click the icon to view the data.) Use the high-low method to determine the laboratory's cost equation for total laboratory overhead. Use your results to predict total laboratory overhead if 3,100 lab tests are performed next month
Let's begin by determining the formula that is used to calculate the variable cost (slope) Change in volume Variable cost (slope) Change in cost /
Now determine the formula that is used to calculate the fixed cost component. Total operating cost Total variable cost Fixed cost =
Use the high-low method to determine MetroHealth's operating cost equation. (Round the variable cost to the nearest cent.) 4.40 x$ 10,640 y $
Use the operating cost equation you determined above to predict total laboratory overhead if 3,100 lab tests are performed next month The total laboratory overhead at a volume of 3,100 lab tests is $ X
Data Table 1
Number of Lab Tests Month Performed Total Laboratory Overhead Costs
January. . . . . . . . . 3,200 $27,200
February. . . . . . . . 2,900 $26,500
March. . . . . . . . . 3,700 $30,300
April. . . . . . . . . . . . 4,100 $32,600
May. . . . . . . . . . . 4,400 $30,000
June. . . . . . . . . . 1,900 $19,000
July. . . . . . . . . . . 2,500 $19,400