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Which of the above three regressions should be used to budget the cost of the cardiac nursing care activity for the remainder of 2009?

West Valley Regional Hospital has collected data on all of its activities for the past 14 months. Data for cardiac nursing care follow:

Month                              Cost                            Hours of Nursing Care
May 2008$ 66,0001,600
June 200876,5001,900
July 200878,1001,950
August 200873,1801,800
September 200869,5001,700
October 200864,2501,550
November 200852,0001,200
December 200866,0001,600
January 2009110,0001,800
February 200986,4851,330
March 2009105,0221,700
April 2009100,0001,600
May 2009120,0002,000
June 2009109,5001,790

Required

1.    Using the high-low method, calculate the variable rate per hour and the fixed cost for the nursing care activity. Comment on your results.

2.    Upon looking into the events that happened at the end of 2008, you find that the cardiology ward bought a cardiac-monitoring machine for the nursing sta- tion. A decision was also made to add a new supervisory position for the evening shift. Monthly depreciation on the monitor and the salary of the new supervisor total $10,000. In addition, the rest of the nursing staff received a raise, and the cost of supplies had increased. Run the following regressions:

a.      Create a dummy variable called “changes” that takes the value 0 for observa- tions in 2008 and the value 1 for observations in 2009. Run multiple regres- sion on these data.

b.      Run a regression on the 2008 data, using nursing hours as the single inde- pendent variable.

c.       Run a regression on the 2009 data, using nursing hours as the single inde- pendent variable.

Which of the above three regressions should be used to budget the cost of the cardiac nursing care activity for the remainder of 2009? Discuss your findings. Which cost formula should be used to budget the cost of the cardiac nursing care activity for the remainder of 2009?

 
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