Final answer:
To calculate the hospital's cost equation using nursing hours as the cost driver, the high-low method requires identifying high and low-period total costs, determining the variable cost per hour, calculating the fixed cost, and then forming the equation: Total Cost = Fixed Cost + (Variable Cost per Hour × Number of Nursing Hours).
Step-by-step explanation:
To determine the hospital's cost equation using nursing hours as the cost driver through the high-low method, one would first identify the periods with the highest and lowest levels of nursing hours and record the corresponding total costs. The variable cost per nursing hour is calculated by taking the difference in total costs divided by the difference in the number of nursing hours between the high and low periods. To find the fixed cost, use either the high or low data point and subtract the total variable cost (variable cost per hour times the number of hours) from the total cost. Finally, the cost equation can be created using the formula: Total Cost = Fixed Cost + (Variable Cost per Hour × Number of Nursing Hours).
The provided narrative discusses the effects of nurses' salaries on the demand for nursing labor. It remarks on the significant portion that benefits contribute to nurse compensation and the potential actions employers may take if faced with rising labor costs, including reducing nurse hires or supplementing with technology and lower-paid aides.
Example
If the highest cost at 300 nursing hours is $4,500 and the lowest cost at 150 nursing hours is $2,500, the variable cost per nursing hour would be: ($4,500 - $2,500) / (300 - 150) = $2,000 / 150 = $13.33 per hour. If we use the high data point to calculate the fixed cost: $4,500 - (300 × $13.33) = $4,500 - $4,000 = $500. The cost equation is then: Total Cost = $500 + ($13.33 × Nursing Hours).