Health Care Finance

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2.1

CHAPTER 5 HOMEWORK - COSTING AND PROFIT ANALYSIS
Homework 2.1, Chapter 5
Using the data below, answering the following questions:
Fixed costs $23,750,000
Variable cost/day $525
Charge (rev)/day $2,575
Inpatient days 14,500
a. Construct the hospital's base case projected P&L statement
b. What is the hospital's breakeven point (volume / patient days needed to breakeven)?
c. What is the economic breakeven (volume required ) to provide a profit of $1,500,000?
d. What is the total contribution margin if volume decreases by 20%?
e. Based on the scenario in d., if fixed costs remain the same, what is the hospital's profit or loss?

2.2

CHAPTER 5 HOMEWORK - COSTING AND PROFIT ANALYSIS
Homework 2.2, Chapter 5
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are below. Revenue and variable costs are based on the projected number of visits. Medical and administrative supplies are variable costs; all other costs are fixed costs. Medical and administrative supplies are variable costs; all other costs are fixed costs.
Projected Visits 12,000
Revenues $650,000
Wages & benefits 300,000
Rent 6,500
Depreciation 40,000
Utilities 4,200
Medical supplies 55,000
Administrative supplies 10,000
a. Construct the clinic's projected P&L statement
b. What is the total contribution margin?
c. What is the contribution margin rate (rounded to the nearest dollar)?
d. What is the clinic's breakeven point?
e. What is the economic breakeven for a profit of $100,000?

2.3

CHAPTER 6 HOMEWORK - DEPARTMENTAL COSTING AND COST ALLOCATION
Homework 2.3, Chapter 6
St. Benedict Hospital has three primary revenue producing departments (Inpatient, Outpatient, Clinic) with the following revenue and cost projections. In order to better determine the departments’ overall true cost and profit margin, management wants to allocate service department costs as overhead allocations to these departments.
PROJECTED REVENUES AND COSTS PER DEPARTMENT
Revenues
Inpatient Services $ 19,250,000
Outpatient Services 28,500,000
Clinic Services 11,500,000
Total revenues $ 59,250,000
Direct Costs
Inpatient Services $ 11,250,000
Outpatient Services 14,250,000
Clinic Services 4,500,000
Total costs $ 30,000,000
Service Department Costs
Financial Services $ 5,000,000
Facilities 9,500,000
Housekeeping 3,000,000
Administration 4,500,000
Total overhead costs $ 22,000,000
Total Costs $ 52,000,000
Projected Profit $ 7,250,000
Management considered various cost drivers and made the determiniation to use the following as the most relevant for each service department:
Department Cost Driver
Financial Services Patient revenue
Facilities Square feet
Housekeeping Housekeeping hrs
Administration Salary dollars
Utlization information for allocations:
Cost Driver Inpatient Outpatient Clinic Total Utilization
Square Feet 285,000 225,000 75,000 585,000
Housekeeping Hours 85,000 60,000 25,000 170,000
Salary Dollars $6,500,000 $9,000,000 $2,500,000 $18,000,000
Based upon this information, complete the following, filling in each highlighted cell. Be sure to use formulas to show your work.
Use Exhibit 6.6 as a guideto complete this table and calculate the allocation rates for each service department cost.
Department Cost Pool Amount Cost Driver Total Utilization Allocation Rate
Financial Services
Facilities
Housekeeping
Administration
Use Exhibit 6.7 as a guide to complete the indirect cost allocations to each patient service area.
Indirect Cost Allocations Inpatient Outpatient Clinic Total
Financial Services
Facilities
Housekeeping
General Administration
Total Indirect Costs
Using Exhibit 6.8 as a guide, complete the P&L projections below for each patient service area.
P&L Inpatient Outpatient Clinic Total
Revenue
Direct Costs
Indirect Costs
Total Costs
Profit using only Direct Costs
Profit margin % using Direct Costs only
Profit using Total Costs
Profit margin % using Total Costs