QuestionWeek 4 HomeworkChapter 7: 7-1, 7-2, 7-3, & 7-4

Week 4 Homework

Chapter 7: 7-1, 7-2, 7-3, & 7-4

Chapter 8: 8-1, 8-2, 8-3, & 8-4

7.1

Assume that the managers of Fort Winston Hospital are setting theprice on a new outpatient service. Here are relevant data estimates:

Variable cost per visit $ 5.00

Annual direct fixed costs $500,000

Annual overhead allocation $ 50,000

Expected annual utilization 10,000

1. What per-visit price must be set for the service to break even? Toearn an annual profit of $100,000?
2. Repeat Part a, but assume that the variable cost per visit is $10.
3. Return to the data given in the problem. Again repeat Part a, but

   assume that direct fixed costs are $1,000,000.

4. Repeat Part a assuming both $10 in variable cost and $1,000,000in direct fixed costs.

7.2

The audiology department at Randall Clinic offers many services tothe clinic’s patients. The three most common, along with cost andutilization data, are as follows:

Service Variable Cost Annual Direct Annual # Visits

per Service Fixed Costs

Basic exam $5 $50,000 3,000

Advanced examination $7 $30,000 1,500

Therapy session $10 $40,000 500

1. What is the fee schedule for these services, assuming that the goal is

   to cover only variable and direct fixed costs?

2. Assume that the audiology department is allocated $100,000 in

   total overhead by the clinic, and the department director has al­

   located $50.000 of this amount to the three services listed above.What is the fee schedule assuming that these overhead costs mustbe covered? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of numberof visits.)

3. Assume that these services must make a combined profit of $25,000 .Now what is the fee schedule? (To answer this question, assumethat the profit requirement is allocated in the same way as overheadcosts.)lied Laboratories is combining some of its most common

7.3

Allied Laboratories is combining some of its most common tests intoone-price packages. One such package will contain three tests thathave the following variable costs:

Test A Test B Test C

Disposable syringe $3.00 $3.00 $3.00

Blood vial 0.50 0.50 0.50

Forms 0.15 0.15 0.15

Reagents 0.80 0.60 1.20

Sterile bandage 0.10 0.10 0.10

Breakage/losses 0.05 0.05 0.05

When the tests are combined, only one syringe, form, and sterile ban­dage will be used. Furthermore, only one charge for breakage/losseswill apply. Two blood vials are required, and reagent costs will remainthe same (reagents from all three tests are required).

1. As a starting point, what is the price of the combined test assuming

   marginal cost pricing?

2. Assume that Allied wants a contribution margin of $10 per test.

   What price must be set to achieve this goal?

3. Allied estimates that 2,000 of the combined tests will be conduct­ed during the first year. The annual allocation of direct fixed and

   overhead costs total $40,000. What price must be set to cover full

   costs? What price must be set to produce a profit of $20,000 on thecombined test?

7.4

Assume that Valley Forge Hospital has only the following three payergroups:

Number of Average Revenue Variable Cost

Payer Admissions per Admission per Admission

PennCare 1,000 $5,000 $3,000

Medicare 4,000 4,500 4,000

Commercial 8,000 7,000 2,500

The hospital’s fixed costs are $38 million,

1. What is the hospital’s net income?
2. Assume that half of the 100.000 covered lives in the commercialpayer group will be moved into a capitated plan. All utilization andcost data remain the same. What PMPM rate will the hospital haveto charge to retain its Part a net income?
3. What overall net income would be produced if the admission rate

   of the capitated group were reduced from the commercial level by

   10 percent?

4. Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admissionfor the capitated group were lowered to $2,200?

8.1

Consider the following 2011 data for Newark General Hospital (in millionsof dollars):

Static Flexible Actual

Budget Budget Results

Revenues $4.7 $4.8 $4.5

Costs 4.1 4.1 4.2

Profits 0.6 0.7 0.3

a.

Calculate and interpret the profit variance.

Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.