Question

After graduating from dental school two years ago, Dr. Lauren Farish purchased the dental practice of a long-time dentist who was retiring. In January of this year she had to replace the outdated autoclave equipment she inherited from the previous dentist. Now, as she is preparing her budget for next year, she is concerned about understanding how her cost for sterilizing her dental instruments has changed. She has gathered the following information from her records:
Month Number of instruments used Total autoclave cost
January 724 $7,468
February 624 6,574
March 824 7,114
April 1,024 9,080
May 924 7,776
June 1,124 8,600
July 1,324 10,012
August 1,224 9,816
1) What is the variable cost of sterilizing an instrument using the new equipment?
2) What is the fixed cost of the autoclave equipment?
3) What is the cost formula that Dr. Farish should use for estimating autoclave sterilization costs for next year's budget?
4) If Dr. Farish estimates she will use 1,192 instruments next month, what cost should she include in her budget for instrument sterilization? (Round answer to 0 decimal places, e.g. 5,275.)
Total cost $ _

Answer 1

Answer:

Total cost formula= 3,510 + 4.911*x

x= Number of instruments

Explanation:

To calculate the variable and fixed costs, we will use the high-low method:

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

Variable cost per unit= (10,012 - 6,574) / (1,324 - 624)

Variable cost per unit= $4.911

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

Fixed costs= 10,012 - (4.911*1,324)

Fixed costs= $3,510

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

Fixed costs= 6,574 - (4.911*624)

Fixed costs= $3,510

Total cost formula= 3,510 + 4.911*x

x= Number of instruments

For 1,192 instruments:

Total cos= 3,510 + 4.911*1,192

Total cost= $9,363.9