Week 4 HomeworkChapter 7: 7-1, 7-2, 7-3, & 7-4Chapter 8: 8-1, 8-2, 8-3, & 8-47.1Assume that the managers of Fort Winston Hospital are setting theprice on a new outpatient service. Here are relevant data estimates:Variable cost per visit $ 5.00Annual direct fixed costs $500,000Annual overhead allocation $ 50,000Expected annual utilization 10,000What per-visit price must be set for the service to break even? Toearn 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, butassume that direct fixed costs are $1,000,000.Repeat Part a assuming both $10 in variable cost and $1,000,000in direct fixed costs.7.2The 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 CostsBasic exam $5 $50,000 3,000Advanced examination $7 $30,000 1,500Therapy session $10 $40,000 500What is the fee schedule for these services, assuming that the goal isto cover only variable and direct fixed costs?Assume that the audiology department is allocated $100,000 intotal 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 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.)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 common7.3Allied 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 CDisposable syringe $3.00 $3.00 $3.00Blood vial 0.50 0.50 0.50Forms 0.15 0.15 0.15Reagents 0.80 0.60 1.20Sterile bandage 0.10 0.10 0.10Breakage/losses 0.05 0.05 0.05When 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).As a starting point, what is the price of the combined test assumingmarginal 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 andoverhead costs total $40,000. What price must be set to cover fullcosts? What price must be set to produce a profit of $20,000 on thecombined test?7.4Assume that Valley Forge Hospital has only the following three payergroups: Number of Average Revenue Variable CostPayer Admissions per Admission per AdmissionPennCare 1,000 $5,000 $3,000Medicare 4,000 4,500 4,000Commercial 8,000 7,000 2,500The 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 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?What overall net income would be produced if the admission rateof the capitated group were reduced from the commercial level by10 percent?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?8.1Consider the following 2011 data for Newark General Hospital (in millionsof dollars):Static Flexible ActualBudget Budget ResultsRevenues $4.7 $4.8 $4.5Costs 4.1 4.1 4.2Profits 0.6 0.7 0.3a. 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 thecost side.f. How are the variances calculated above related?8.2Here are the 2011 revenues for the Wendover Group Practice Association for four different budgets (in thousands of dollars):Flexible FlexibleStatic Enrollment/Utilization) (Enrollment) ActualBudget Budget Budget Results$425 $200 $180 $300a. What does the budget data tell you about the nature of Wendover’spatients: Are they capitated or fee-for-service? (Hint: See the note toExhibit 8.7.)b. Calculate and interpret the following variances:•Revenue variance•Volume variance•Price variance•Enrollment variance8.3 Here are the budgets of Brandon Surgery Center for the most recenthistorical quarter (in thousands of dollars): Static Flexible ActualNumber of surgeries 1,200 1,300 1,300Patient revenue $2,400 $2,600 $2,535Salary expense 1,200 1,300 1,365Non-salary expense 600 650 585Profit $600 $650 $585The center assumes that all revenues and costs are variable andhence tied directly to patient volume.a. Explain how each amount in the flexible budget was calculated. (HintExamine the static budget 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 dollar terms and in percentage terms. (Hint: Each line hasatotal variance, a volume variance, and a price variance [for revenuesand management variance [for expenses].)c. What do the Part b results tell Brandon’s managers about the surgerycenter’s operations for the quarter?8.4Refer to Carroll Clinic’s 2011 operating budget contained in Exhibit 8.3,Instead of the actual results reported in Exhibit 8.4, assume the resultsreported below:Carroll Clinic: New 2011 Results/. Volume:A. FFS 34,000 visitsB. Capitated lives 30,000 membersNumber of member-months 360,000Actual utilization permember-month 0.12Number of visits 43,200visitsC. Total actual visits 77,200visitsII. Revenues:A.FFS $28 per visitX 34,000 actual visits$ 952,000B. Capitated lives $ 2.75 PMPMX 360,000 actual member-months$ 990,000C.Total actual revenues $1,942,000III. 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 $525,000C. Total actual costs $1,893,000IV. 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 $49,000Construct 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.

"Get 15% discount on your first 3 orders with us"
Use the following coupon

Order Now