St. Mark’s Hospital contains 450 beds. The average occupancy rate is 80% per month. In other words, on average, 80% of the hospital’s beds are occupied by patients. At this level of occupancy, the hospital’s operating costs are $32 per occupied bed per day, assuming a 30-day month. This $32 figure contains both variable and fixed cost elements.
During June, the hospital’s occupancy rate was only 60%. A total of $326,700 in operating cost was incurred during the month.
Required:
1. Using the high-low method, estimate:
a. The variable cost per occupied bed on a daily basis.
b. The total fixed operating costs per month.
2. Assume an occupancy rate of 70% per month. What amount of total operating cost would you expect the hospital to incur?