- Explain how a scattergraph is used to separate a mixed cost into its fixed and variable components.
(2 Mark)
| Month | Number of Patients Admitted | Admitting Department Costs |
| May………………………………. | 1,800 | $14,700 |
| June………………………………. | 1,900 | $15,200 |
| July……………………………….. | 1,700 | $13,700 |
| August……………………………. | 1,600 | $14,000 |
| September………………………… | 1,500 | $14,300 |
| October…………………………… | 1,300 | $13,100 |
| November………………………… | 1,100 | $12,800 |
| December………………………… | 1,500 | $14,600 |
- The administrator of Aztec Hills Hospital would like a cost formula linking the administrative costs involved in admitting patients to the number of patients admitted during a month. The Admitting Department’s cost and the number of patients admitted during the immediately preceding eight months are given in the following table:
Required:
- Use the high-low method to estimate the fixed and variable components of admitting costs. (2 Marks)
- Express the fixed and variable components of admitting costs as a cost formula in the form Y = a + bX (1 Mark)
- Given a choice between a high-low method, a scattergraph or regression analysis, which method would you prefer to separating a mixed cost into its fixed and variable components? Why? (2 Marks)
- Explain the concept of the relevant range. Howe does a company’s relevant range differ from the steps found in a step cost?
(2 Marks)
