Math Problem, Finance and Accounting



7.1 assume that the managers of fort Winston hospital are setting the price on a new outpatient service. here are relevant data estimates:

variable cost per visit $ 5.00

annual direct fixed cost. $ 500,000

annual overhead allocation. $ 50,000

expected annual utilization. 10,000


a. what per-visit price must be set for the service to break even. to earn an annual profit of $ 100,000.

b. repeat part a, but assume that the variable cost per visit is $10.

c. return to the data given in the problem. again repeat part a but assume that the direct fixed cost are $1,000,000.

d. repeat part a assuming both $10 in variable cost and 1,000,000 in direct fixed cost.
7.2. the audiology department at randall clinic offers many services to the clinic’s patents. the three most common, along with cost and utilization data are as follows;
service. variable cost per service. annual direct fixed cost. annual #of visit
basic examination $5 $50,000 3,000

advanced examination. 7 30,000 1,500

therapy session. 10 40,000 500
a. what is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed cost.

b. assume that the audiology department is allocated $ 100,000 in total overhead by the clinic, and the department director has allocated $50,000 of this amount to the three services listed above. what is the fee schedule assuming that these overhead cost must be covered. ( to answer this question, assume that the allocation of overhead cost to each service is made on the basis of number of visits)
c. assume that these services must make a combined profit of $25,000. now what is the fee schedule. ( to answer this question, assume that the profit requirement is allocated in the same way as overhead cost.

7.3. allied laboratories is combining some of its most common test into one-price packages. one such package will contain three test that have the following variable cost:
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 test are combined, only one syringe, for, and sterile bandage will be used. furthermore, only one charge for breakage/ losses will apply. two blood vials are required and reagent cost will remain the same ( regents from all three test required). a starting point, what is the price of the combined test assuming marginal cost pricing.
b. assume that allied wants a contribution margin of $10 per test. what price must be set to achieve this goal.
c. allied estimates that 2,000 of the combined test will be conducted during the first year. the annual allocation of direct fixed and overhead cost total $40,00. what price must be set to cover full cost. what price must be set to produce a profit of $ 20,000 on the combined test.

7.4 assume that valley forge hospital has only the following three payer groups:

payer number of admissions. average revenue per admission.variable cost per ad.
penn care 1,0000 $ 5,000 $3,000
medicare. 4,000 4,500 4,000
commercial 8,000 7,000 2,500

the hospital’s fixed cost are $38million.
a. what is the hospital’s net income.
b. assume that half of the 100,000 covered lives in the commercial payer group will be moved into capitated plan. all utilization and cost data remain the same. what pm pm rate will the hospital have to charge to retain its part a net income.
c. what overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent.
d. assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200.
8.1 Consider the following 2011 data newark general hospital (in million of dollars):

static budgets flexible budgets actual results
revenues $4.7 $4.8 $4.5
cost 4.1 4.1 4.2
profits 0.6 0.7 0.3

a. calculate and interpret the profit variance.
b. calculate and interpret the revenue variance
c. calculate and interpret the cost variance.
d. calculate and interpret the volume and price variances on the revenue side
e. calculate and interpret the volume and management variances on the cost side.
f. how are the variances calculated above related.

8.2. here are the 2011 revenues for the Wendover group practice association for four different budgets ( in thousand of dollars):

static budgets. flexible(enrollment/ utilization budgets)flexible enrollment actual
budgets res.
$425 $200 $180 $300

a. what does the budget data tell you about the nature of Wendover’s patients: are they capitated or fee-for-service.
b. calculate and interpret the following variances:
revenue variances.
volume variance.
price variance.
enrollment variance
utilization variance.

8.3. here are the budgets of Brandon surgery center for the most recent historial quarter ( in thousands of dollars.):

static flexible actual
number of surgeries 1,200 1,300 1,300

patient revenue $2,400 2,600 2,535

salary expense. 1,200 1,300 1,365

non-salary expense. 600 650 585

profit. $600 $600 $585
the center assumes that all revenues and cost are variable and hence tied directly to patient volume.

a. explain how each amount in the flexible budget was calculated ( hint : examine the static budget to determine to determine the relationship of each budget line to volume.)
b. determine the variances for each line of the profit and loss statement, both in dollars terms and in percentage terms. (Hint: each line has a total variance, a volume variance, and a price variance ( for revenues) and management variance ( for expenses)
c. what do the part b results tell brandons’s managers about the surgery center’s operation for the quarter.

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