Analyze cost behavior at a hospital using various cost estimation methods (Learning
Objectives 1, 2, 3, 4 & 5)
Freida Dudley is the Chief Operating Officer at Memorial Hospital in Scandia,
Minnesota. She is analyzing the hospitalâ€™s overhead costs but is not sure whether nursing
hours or the number of patient days would be the best cost driver to use for predicting the
hospitalâ€™s overhead. She has gathered the following information for the last six months of
the most recent year:
Nursing Number of
Hours Patient Days
per Patient Day
1. Are the hospitalâ€™s overhead costs fixed, variable, or mixed? Explain.
2. Graph the hospitalâ€™s overhead costs against nursing hours. Use Excel or graphby
3. Graph the hospitalâ€™s overhead costs against the number of patient days. Use Excel
or graph by hand.
4. Do the data appear to be sound or do you see any potential data problems?
5. Use the high-low method to determine the hospitalâ€™s cost equation using nursing
hours as the cost driver. Predict total overhead costs if 23,500 nursing hours
arepredicted for the month.
6. Ms. Dudley runs a regression analysis using nursing hours as the cost driver
topredict total hospital overhead costs. The Excel output from the regression
analysisis shown next:
If 23,500 nursing hours are predicted for the month, what is the total predicted hospital
7. Ms. Dudley then ran the regression analysis using number of patient days as the
cost driver. The Excel output from the regression is shown here:
If 3,300 patient days are predicted for the month, what is the total predicted hospital overhead?
8. Which regression analysis (using nursing hours or using number of patient days as
the cost driver) produces the best cost equation? Explain your answer