The facilities housekeeping department at St. Luke's Hospital has determined that the appropriate cost driver for housekeeping costs is patient-days. There are 10,000 patient-days per month
The department has collected the following accounts for the past month:
Monthly Housekeeping Expenses Amount
Supervisors' Salaries Expense $10,000
Depreciation Expense—Scrubbing Machines $5,000
Cleaning Supplies Expense $7,000
Hourly Workers' Wages Expense $100,000
Insurance Expense—Scrubbing Machines $2,000
Required:
Estimate the cost function using the account analysis method.
Fixed Costs:
Supervisors' Salaries Expense $10,000
Depreciation Expense—Scrubbing Machines $5,000
Insurance Expense—Scrubbing Machines $2,000
Total Fixed Costs $17,000
Variable Costs:
Cleaning Supplies Expense $7,000
Hourly Workers' Wages Expense $100,000
Total Variable Costs $107,000
Variable Cost per Patient-day is $107,000 / 10,000 = $10.70 per patient day
Cost function:
Y = $17,000 + $10.70X
Where:
Y= Total monthly housekeeping cost
X = Number of patient-days
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