Chapter 6, Problem 6.51BE

Using the high-low method to predict overhead for a hospital laboratory (Learning Objective 4)

Refer to the laboratory overhead cost and activity data for Rosedale Health Center in E6-50B. 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 2,700 lab tests are performed next month.

The manager of the main laboratory facility at Rosedale Health Center is interested in being able to predict the overhead 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.

Month	Number of Lab Tests Performed	Total Laboratory Overhead Costs
January	3,250	$ 27,600
February	3,000	$ 24,800
March	3,750	$ 25,900
April	3,500	$ 23,500
May	4,200	$ 27,000
June	2,200	$ 18,800
July	3,400	$ 26,500