SouthlakeMedical Clinic offers a number of specialized medical services. A review of data for the year just ended revealed variable costs of $40 per patient day, annual fixed costs of $510,000, and semi-variable costs, which displayed the following behaviour at the "peak" and "valley" levels of activity.
March (2,500 patient days): $258,400
July (3,000 patient days): $278,900
Required:
A. Calculate the total cost for an upcoming month (3,200 patient days) if current cost behaviour patterns continue. Southlake uses the high-low method to analyze cost behaviour.
B. There is a high probability that Southlake'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 3,200 patient days be employed to estimate the costs for, say, 5,200 patient days? Why or why not?

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The Answer of SouthlakeMedical Clinic offers a number of specialized medical services. A review of data for the year just ended revealed variable costs of $40 per patient day, annual fixed costs of $510,000, and semi-variable costs, which displayed the following behaviour at the "peak" and "valley" levels of activity.
March (2,500 patient days): $258,400
July (3,000 patient days): $278,900
Required:
A. Calculate the total cost for an upcoming month (3,200 patient days) if current cost behaviour patterns continue. Southlake uses the high-low method to analyze cost behaviour.
B. There is a high probability that Southlake'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 3,200 patient days be employed to estimate the costs for, say, 5,200 patient days? Why or why not?

SouthlakeMedical Clinic Offers a Number of Specialized Medical Services