Posted: April 26th, 2016

What number of visits is required to provide you with an after-tax profit of $100,000?

5.4
General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services:

Fixed Costs: $10,000,000
Variable cost per inpatient day: $200
Charge (revenue) per inpatient day: $1,000

The hospital expects to have a patient load of 15,000 inpatient days next year.
a. Construct the hospital’s base case projected P&L statement.
b. What is the hospital’s breakeven point?
c. What volume is required to provide a profit of $1,000,000? A profit of $500,000?
d. Now assume that 20 percent of the hospital’s inpatient days come from a managed care plan that wants a 25 percent discount from charges. Should the hospital agree to the discounted proposal?

5.5
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

Revenues: $400,000
Wages & Benefits: $220,000
Rent: $5,000
Depreciation: $30,000
Utilities: $2,500
Medical Supplies: $50,000
Administrative Supplies: $10,000

Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 20 percent rate.
a. Construct the clinic’s projected P&L statement.
b. What number of visits is required to break even?
c. What number of visits is required to provide you with an after-tax profit of $100,000?

6.1
the housekeeping services department of Ruger Clinic, a multi-specialty practice in Toledo, Ohio had $100,000 in direct costs during 2011. These costs must be allocated to Ruger’s three revenue-producing patient services departments using the direct method. Two cost drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenues during 2011, and to support these clinical activities, they used 5,000 hours of housekeeping services.
a. What is the value of the cost pool?
b. What is the allocation rate if:
a. Patient services revenue is used as the cost driver?
b. House of housekeeping services is used as the cost driver?