Hsa 525 problems | Accounting homework help
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 the price 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
- What per-visit price must be set for the service to break even? To earn an annual profit of $100,000?
- Repeat Part a, but assume that the variable cost per visit is $10.
- Return to the data given in the problem. Again repeat Part a, but
assume that direct fixed costs are $1,000,000. - Repeat Part a assuming both $10 in variable cost and $1,000,000 in direct fixed costs.
7.2
The audiology department at Randall Clinic offers many services to the clinic’s patients. The three most common, along with cost and utilization 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
- What is the fee schedule for these services, assuming that the goal is
to cover only variable and direct fixed costs? - 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 must be covered? (To answer this question, assume that the allocation of overhead costs to each service is made on the basis of number of visits.) - 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 costs.) lied Laboratories is combining some of its most common
7.3
Allied Laboratories is combining some of its most common tests into one-price packages. One such package will contain three tests that have 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/losses will apply. Two blood vials are required, and reagent costs will remain the same (reagents from all three tests are required).
- As a starting point, what is the price of the combined test assuming
marginal cost pricing? - Assume that Allied wants a contribution margin of $10 per test.
What price must be set to achieve this goal? - 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 the combined test?
7.4
Assume that Valley Forge Hospital has only the following three payer groups:
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,
- What is the hospital’s net income?
- Assume that half of the 100.000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain its Part a net income?
- What overall net income would be produced if the admission rate
of the capitated group were reduced from the commercial level by
10 percent? - 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 for Newark General Hospital (in millions of 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.
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 thousands of dollars):
Flexible Flexible
Static Enrollment/Utilization) (Enrollment) Actual
Budget Budget Budget Results
$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? (Hint: See the note to
Exhibit 8.7.)
b. Calculate and interpret the following variances:
• Revenue variance
• Volume variance
• Price variance
• Enrollment variance
8.3 Here are the budgets of Brandon Surgery Center for the most recent historical 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 $650 $585
The center assumes that all revenues and costs 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 the relationship of each bud
get line to volume.)
b. Determine the variances for each line of the profit and loss statement,
both in dollar 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 Brandon’s managers about the surgery center’s operations for the quarter?
8.4
Refer to Carroll Clinic’s 2011 operating budget contained in Exhibit 8.3, Instead of the actual results reported in Exhibit 8.4, assume the results reported below:
Carroll Clinic: New 2011 Results
/. Volume:
A. FFS 34,000 visits
B. Capitated lives 30,000 members
Number of member-months 360,000
Actual utilization per
member-month 0.12
Number of visits 43,200 visits
C. Total actual visits 77,200 visits
II. Revenues:
A.FFS $28 per visit
X 34,000 actual visits $ 952,000
B. Capitated lives $ 2.75 PMPM
X 360,000 actual member-months $ 990,000
C.Total actual revenues $1,942,000
III. Costs:
A. Variable Costs:
Labor $1,242,000 (46,000 hours at $27/hour)
Supplies 126,000 (90,000 units at $1.40/unit)
Total variable costs $ 17.72 ($1,368,000 / 77,200)
B. Fixed Costs
Overhead, plant,
and equipment $525,000
C. Total actual costs $1,893,000
IV. Profit & Loss Statement:
Revenues:
FFS $952,000
Capitated $990,000
Total $1,942,000
Costs:
Variable:
FFS $602,487
Capitated 765,513
Total $1,368,000
Contribution Margin $574,000
Fixed Costs 525,000
Actual profit $49,000
- Construct Carroll’s flexible budget for 2011.
- What are the profit variance, revenue variance, and cost variance?
- Consider the revenue variance. What is the component volume variance? The price variance?
- Break down the cost variance into volume and management components.
- Break down the management variance into labor, supplies, and fixed cost variances.
- Interpret your results. In particular, focus on the differences between the variance analysis here and the Carroll Clinic illustration presented in the chapter.
