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St. Mark's Hospital contains 450 beds. The average occupancy rate is 80% per month. In other words, on average, 80% of the hospital's beds are occupied by patients. At this level of occupancy, the hospital's operating costs are 32 per occupied bed per day, assuming a 30 -day month. This 32 figure contains both variable and fixed cost elements. During June, the hospital's occupancy rate was only 60% . A total of 326,700 in operating cost was incurred during the month.
(b) Assume an occupancy rate of 70% per month. What amount of total operating cost would you expect the hospital to incur?

Respuesta :

Using Hi-Low Method, computations for variable cost per unit and total fixed costs are presented below;

High (450 x 30 x 80%) 10,800 10,800 x 32 345,600

Low (450 x 30 x 60%) 8,100 8,100 x 32 326,700

Difference 2,700 18,900

Variable Cost per Bed = 18,900 / 2,700 = 7

Total Fixed Cost = 326,700 - (8,100 beds x 7) = 270,000

For requirement no. 2, regardless of the changes in the occupancy rate, our total fixed costs will remain the same. Only the variable cost will change

Variable cost 450 x 30 x 70% x 7 66,150

Fixed costs 270,000

Total operating cost 336,150

Accordingly, total operating cost at 70% occupancy rate is 336,150.

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