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The manager of the main laboratory facility at CapitalHealth Center is interested in being able to predict the overhead costs each month for the lab. The manager believes that total overhead varies with the number of lab tests performed but that some costs remain the same each month regardless of the number of lab tests performed. The lab manager collected the following data for the first seven months of the year. (Click the icon to view the data.) Use the high-low method to determine the laboratory's cost equation for total laboratory overhead. Use your results to predict total laboratory overhead if 3,000 lab tests are performed next month.
Number of Lab Tests Performed Total Laboratory Overhead Costs Month January February March ....... 2,800 2,600 3,100 April 3,550 $21,500 $22,700 $27,900 $31,400 $28,500 $19,500 $14,500 May ....... 3,700 1,200 June July 1,400

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Answer:

Total cost= $26,668

Explanation:

Giving the following information:

Highest cost= $31,400

Lowest cost= $14,500

Highest activity= 3,700

Lowest activity= 1,200

To calculate the variable and fixed costs, we need to use the following formula:

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (31,400 - 14,500) / (3,700 - 1,200)

Variable cost per unit= $6.76

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 31,400 - (6.76*3,700)

Fixed costs= $6,388

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 14,500 - (6.76*1,200)

Fixed costs= $6,388

Now, for 3,000 tests:

Total cost= 6,388 + 6.76*3,000

Total cost= $26,668

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