Management Accounting: High-Low Method, Cost of Goods Sold, Relevant Cost and Opportunity Cost

Accounting

Contents
Contents...........................................................................................................................................2
Question 1........................................................................................................................................1
Question 2........................................................................................................................................2
(i)..................................................................................................................................................2
(ii)................................................................................................................................................3
Question 3........................................................................................................................................4
(a).................................................................................................................................................4
(b).................................................................................................................................................5
Question 5........................................................................................................................................5
(a).................................................................................................................................................5
(b).................................................................................................................................................6
(c).................................................................................................................................................6

Question 1
Using the high-low method, estimate:
(a) The variable cost per occupied bed on a daily basis.
Difference in cost:
Monthly operating cost at 80% occupancy:
550 x 80%= 440 rooms
440 x £32 x 30 days 422,400
Monthly operating cost at 60% occupancy (which is given) 399,300
Difference in cost 23,100
Difference in activity:
80% occupancy (550 x 80% x 30days) 13,200
60% occupancy (550 x 60% x 30days) 9,900
Difference in activity = 3,300
Change in cost / change in activity = 23,100/3,300 = £7 per room per day
Monthly operating cost at 80% occupancy (above)
Less variable cost:
422,400
440 beds x 30daysx £7 92,400
Fixed operating cost per month 330,000
550 beds x 70%
= 385 beds occupied
(b) The total fixed operating costs per month. (6 marks)
Monthly operating cost at 80% occupancy (above) Less
variable cost:
422,400
440 beds x 30daysx £7 92,400
Fixed operating cost per month 330,000
550 beds x 70%
= 385 beds occupied
2. Assume an occupancy rate of 70% per month. What amount of total operating cost would you
expect the hospital to incur?