Expert Solutions

Note: For those Assignments in this course that require you to perform calculations you must:

Create an Excel spreadsheet containing the information provided.

Show all your work.

Answer any questions included with the problems (as text in the Excel spreadsheet).

For those not comfortable with the use of Microsoft Excel, this week’s Optional Resources suggest several tutorials.

To prepare:

Review the information in this week’s Learning Resources (including the Media) dealing with net revenue, fixed and variable costs, and cash flow and how they are used in financial decision making.

Carefully examine the information in each of the three scenarios below and consider how calculations using this information can be used to answer the questions asked.

This Assignment will be due by Day 7 of Week 5. Be sure and include all of your calculations.

Net Revenue Scenario

Your clinic provides four kinds of services:

Comprehensive initial medical consultation is priced at $250

Established patient limited visit is priced at $75

Established patient intermediate visit is priced at $125

Established patient comprehensive visit is priced at $250

Question: The profile of your patients is such that the average collection rate is 75%. Assuming you have 100 visits of each type each month, what amount of new revenue will you generate in the next 12 months?

Fixed/Variable Cost Scenario

You have performed a cost analysis of your health care organization and have determined the following: based on the latest three years of information, your annual cost of operations is $1,600,000 with annual volume of 10,000 procedures. You have determined that certain of your supply items are fixed in nature (those marked with an F) while others are variable (marked with a V).

Cost Items

F/V

Average Annual Amount

Cost Items

F/V

Average Annual Amount

Supply item 1

F

$220,000

Supply item 6

F

50,000

Supply item 2

F

180,000

Supply item 7

V

500,000

Supply item 3

F

75,000

Supply item 8

V

300,000

Supply item 4

F

50,000

Supply item 9

V

200,000

Supply item 5

F

25,000

Total

1,600,000

Question: An insurance company that is considering directing its 1,000 units per year of procedure business to your organization has approached you. For the last three years, you have been charging a price of $165 per procedure (with a 100% collection rate). Your board has mandated that you make $5 of profit from each of the procedures. You obviously want the highest possible price, but as you enter the negotiations, what is the lowest possible price you would be willing to accept from this payer?

Cash Flow Scenario

Your new business venture will begin operation on July 1, 20X2. You will hire staff effective January 1, 20X2 with a cost of $40,000 per month. You know from experience that collections lag billing by 3 months (in other words, once you bill for a service, you must wait 90 days for the payment to be received.) Your business volume is projected to be as follows:

Month

Volume

Billing

July, 20X2

1,000

$100,000

August

1,000

$100,000

September

1,000

$100,000

October

1,000

$100,000

November

1,000

$100,000

December

1,000

$100,000

January, 20X3

1,000

$100,000

February

1,000

$100,000

March

1,000

$100,000

April

1,000

$100,000

May

1,000

$100,000

June

1,000

$100,000

Question: If you have $380,000 of cash on hand on January 1, 20X2, how much cash will you have at the end of June 20X3? Assume a 100% collection rate.