Trane Medical Clinic offers a number of specialized medical services. A review of data for the year just ended revealed variable costs of $32 per patient day; annual fixed costs of $480,000, which are incurred evenly throughout the year; and semivariable costs that displayed the following behavior at the "peak" and "valley" of activity: January (2,400 patient days): $258,400August (2,900 patient days): $278,900Required: A. Calculate the total cost for an upcoming month (2,800 patient days) if current cost behavior patterns continue. Trane uses the high-low method to analyze cost behavior.B. There is a high probability that Trane's volume will increase in forthcoming months as patients take advantage of new scientific advances. Can the data and methodology used in part (a) for predicting
the costs of 2,800 patient days be employed to estimate the costs for, say, 3,800 patient days? Why or why not?
What will be an ideal response?
A. Analysis of semivariable cost (variable portion):
($278,900 - $258,400) ÷ (2,900 - 2,400) = $41 per patient day
Analysis of semivariable cost (fixed portion):
| Total cost for 2,900 patient days | $278,900 |
| Less:Variable cost (2,900 × $41) | 118,900 |
| Fixed cost | $160,000 |
| ? | ? |
| Variable cost (2,800 × $32) | $89,600 |
| Fixed cost ($480,000 ÷ 12 months) | 40,000 |
| Semivariable cost: | ? |
| Variable portion (2,800 × $41) | 114,800 |
| Fixed portion | 160,000 |
| Total cost | $404,400 |
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